Today, we take you back to basics and outline the building blocks of franchising. If you’re considering investing in a franchise, you can use this article to understand and navigate the franchising ecosystem end to end.
The franchising industry is booming in the UK. According to the British Franchise Association/NatWest Franchise Survey 2018, it’s experienced substantial growth since 2015 in terms of turnover generated (17.2 billion, up 14 percent), number of people employed (710,000, up 14 percent) and number of franchise units (48,600, up 10 percent).
If you’re an aspiring franchisee, it’s important that you understand the key pillars of franchising. After all, how can you expect to run your own successful franchise unit without knowing the franchising basics? So, today we provide the seven building blocks of franchising; think of it like a bird’s-eye view on the industry as a whole. Then, you can take your next steps with confidence and be sure that it’s the right business move for you.
1. The brand
The brand is at the heart of the franchise system; after all, it’s what differentiates one business from another. It can be a name, a logo, a tagline or any other feature that identifies the goods or services of one business as distinct from those of another.
When you make a franchise investment, a large part of what you’ll be paying for is the brand, including the franchisor’s intellectual property. This is generally made up of the brand name, the copyright, the operations manual and the confidential elements of what makes the franchise work.
But remember that a brand is more than just a name or logo. It’s a holistic concept which represents the recognisable public face of the franchise. It almost acts as a guarantee that the customer will receive consistent, uniform, familiar experiences across all franchise outlets. And it’s this standardisation which customers value and trust.
2. The franchise system
The term ‘franchise system’ describes the whole franchise offering. It’s the franchise business model, the branding, the culture, and the operational procedures all rolled into one. Without a well-defined system, the consistency of the business is jeopardised. This also affects the franchise’s ability to be replicated by franchisees. When you’re reviewing franchise opportunities, you should be satisfied that the system is proven.
A proven franchise concept is very appealing to budding entrepreneurs. By investing in a franchise system that works, you’re able to avoid many of the challenges that independent business owners may face. The franchisor will have ironed out the creases and developed a robust business model.
>> Read more:
3. The role of the franchisor
A franchisor is a person or company that grants the licence to a third party for the conducting of business under their brand name. It’s their role to protect the system and the brand so that all franchisees can thrive. Their main roles include:
- Choosing the right franchisees
- Being a great leader
- Giving franchisees access to their expertise
- Providing ongoing support
- Protecting their brand
- Developing marketing standards
- Being a fantastic communicator
A good franchisor will understand that, as a franchisee, you’re a business partner, not an employee, and treat you as such. They should listen to your opinions and ideas, and communicate openly and honestly.
The franchisor will very often be the driving force behind the culture of a franchise. When you’re attending a discovery day or completing your due diligence, you will get a sense of what this culture is. It’s difficult to analyse whether you feel like you’ll be a good fit for the culture, it’s more a gut feeling that you’ll get. Trust your instinct on this occasion. If you’re going to be a successful franchisee, you need to respect the franchisor and their culture.
If you’d like some more clarification about the franchisor’s roles, see our ‘What is a franchisor?’ article.
4. The role of the franchisee
A franchisee is someone who purchases the right to use a company’s brand name, trademarks, business model and proprietary knowledge from the franchisor.
Their main roles include:
- Protecting the brand
- Maintaining quality control
- Recruiting and training staff
- Managing finances and accounts
- Building a loyal customer base
- Promoting the franchise unit
- Supporting the franchise unit’s growth
5. The franchisor and franchisee relationship
The relationship that you develop with the franchisor is key to your success and longevity as a franchisee. Franchising is a team effort. For the franchisor to succeed, you and the other franchisees must operate profitable franchise units. Therefore, a brand's success depends on an ongoing partnership between franchisor and franchisee. Your relationship is a legal one outlined in the franchise agreement, but for a robust, productive and satisfying partnership, it has to be so much more than this.
Continue your reading on this subject in ‘Franchisor and Franchisee: The Importance of a Strong Relationship’.
6. The franchise agreement
The franchise agreement is a legally binding document that outlines the franchisor’s terms and conditions for the franchisee. When you sign the franchise agreement, you can enter the franchise system. But make sure you always seek legal advice before signing on the dotted line, otherwise you risk facing some nasty surprises further down the road. Find out more in our franchise agreement definition.
>> Read more:
7. The investment
One of the first things that will come to mind when choosing a franchise is whether you can afford it.
Franchisors that have developed a successful franchise business model have done so to expand their business empire and to make money. Similarly, you’ll want to buy a franchise so that you can also make a profit. The beauty of franchising is that it can be financially beneficial to both the franchisor and franchisee.
Franchises are low risk because their systems are well developed and proven. It is difficult for franchisors to provide any exact financial guarantees, but they can give you an indication of how much money you could make, based on how other franchisees have performed. Buying a franchise is no guarantee of success, but by doing comprehensive due diligence, working hard and adhering to the systems and processes, you’re mitigating many of the risks associated with being your own boss.
If you’re not sure how franchise investments work, see our complete guide to franchise costs in the UK.
Hopefully you now understand how all the building blocks come together to form the bigger picture: franchising! You can use our UK franchise directory to browse our A-Z of franchising opportunities. Expect to see everything from care franchises to vending machine franchises on there.
Becky Martin, Point Franchise ©