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by Alastair Kay

Franchising has become an increasingly popular method of starting a new business. This popularity is fuelled by a number of factors. Individuals looking for a change in employment status are often attracted by the possibility of starting a business, whether it is simply to be their own boss or with the aim of becoming a multimillionaire. The trouble is that it isn’t always simple to find an outlet for these entrepreneurial spirits. Starting a business can be a risky venture and often involves considerable capital outlay. In addition, finding that idea around which to build the business is not always easy. Considering franchising is one option open to entrepreneurs who wish to set up a business.

In return for an up front fee and additional management and royalty fees the franchisee gets access to the franchisor’s experience and expertise. He or she receives training in the business, may use the company’s brand name, receives promotional and advertising support and gets detailed advice on where and how to set up. The fees paid to the franchisor are usually smaller than the costs involved in setting up one’s own business. If the franchisor has done the job properly, the franchisee is investing in a tried and tested business format with systems for running the business already in place. The support to the franchisee is not only provided at start-up, but will be given on an on-going basis throughout the term of the franchise agreement.

When it works, franchising works well. However, though the risks involved in being a franchisee are lower than when starting your own business, franchising is not a ‘sure thing.’ All business carries risks. Franchises may fail for a number of reasons. The business may not have been properly structured and structural problems lead to operational problems which in turn lead to financial difficulties. The demand for the product or service may not be there - it is important to pick a franchise system that exploits a trend in the market, rather than a passing fad. The franchisee may not be a businessperson at all - not everyone has what it takes.

Franchising works best when the skills of the franchisee meet the needs of the franchisor and the franchisor’s offering gives the franchisee an outlet for his or her skills. The successful franchisor will vet his /her franchisees very carefully to ensure success and the potential franchisee should take the same care to vet the franchisor.

It is important that the prospective franchisee goes through a series of steps which, while not guaranteeing success, will go a long way towards helping. The prospective franchisee should:

  • Evaluate him or her self
  • Test the franchisor
  • Test the concept

Having decided that they are a suitable franchisee and that they have found a suitable franchise system, the franchisee should further test:

  • The business system
  • The franchise agreement

The first step in considering franchising is to research. Franchises operate in businesses ranging from travel agency, business consultancy, print and signage through to the ever popular franchise restaurants and investment levels can range from next to nothing to hundreds of thousands of pounds. The trick is to find an opportunity that suits you and your needs. No business method or industry sector can guarantee success and franchising is no exception. If the franchise involves a proven product or service with a well recognised brand combined with hard-working, well financed franchisees, the chances of success are very high. If, on the other hand, the franchisor is under funded with an ill conceived idea that has not been tested properly and the franchisees are poorly recruited or trained, failure is likely. The franchisee needs to gather information, ask questions and satisfy themselves that they are entering into a relationship that they are happy with and that will provide an opportunity to recover their investment and make a profit.

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Alastair Kay is manager of Franchise Direct, an online franchising resource owned and operated by McGarry Internet.

Franchise Direct includes comprehensive profiles of many of the world's top franchise opportunities, seeking potential franchisees in the U.S. and Internationally. The site also includes an information centre, presenting a range of checklists and advice to assist potential franchisees in search of the right opportunity.


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