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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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IS
FRANCHISING FOR YOU?
