Find your direction with a franchise

Last year over 2,000 people found a new future with a franchise. Stuart Anderson suggests some directions for your route to franchise success

Why do people invest in franchise licences? According to the 2006 UK Franchise Survey by NatWest and the British Franchise Association (bfa), only 12 per cent of franchisees who signed up in the last three years listed a 'well known brand' as their main reason for selecting a franchise.
Surprised? Don't be. A cursory look through the National Franchise Showcase reveals a whole host of brands that aren't offering an opportunity with a huge amount of national brand equity. What is more important is the proven business concept, comprehensive franchisee training and support and the sheer momentum behind these brands, which saw the franchise industry grow by a total of 2,300 franchised outlets, offices and home-based operations over the last year.

In fact, the top answers for this question are 'growth potential', followed by 'affordability' and 'interest in field' (see Table I). This indicates that what is really drawing people into buying franchises is the opportunity to invest their own capital into building a business that will provide them with quick returns and an enjoyable and stimulating occupation.

A business format franchise, such as the opportunities promoted in The Franchise Magazine, is not just a concession or a licence. It is a proven business model with the full support and backup of an established franchisor organisation which shares an interest in your success. Franchisors should be looking to make their money by earning a Management Service Fee - an ongoing percentage of your turnover - rather than through an upfront sales fee.

However, developing a franchise and providing comprehensive training and launch support designed to ensure your business gets off the ground successfully does incur costs, which will be reflected in the initial franchise investment fee. Therefore treat low investment franchises with caution - the low capital requirement may reflect a lack of investment in the franchise package on the part of the franchisor.

A company that chooses to embark upon a franchise expansion programme in order to develop a franchise licence as a saleable product, which will provide an additional income stream, is completely missing the point of franchising. The most professional business format franchisors recognise franchising as a route to sustainable national growth of its operations utilising the capital of franchisee investors, rather than taking on a huge debt burden or diverting valuable resources into company-funded expansion.

Growth by franchising has the capability to be faster than company-funded growth - rather than scouting and researching each individual location, individuals with local market knowledge come to them complete with their own investment package and a level of enthusiasm and desire, which outstrips any salaried manager. An additional benefit is that the franchisee is entering into a partnership with the franchisor that will tie the fortunes of both together, and is therefore a much safer repository for the systems and know how of the franchisor. More than one franchisor has recognised the value of entering into a legal agreement with a franchisee, rather than transferring its business concept secrets to a store manager who could then leave and set up a rival operation.

However, the prospective franchise investor must beware - not all franchise opportunities are true business format franchises operated by scrupulous directors. It is advisable to carry out a number of checks (see Table II) and be absolutely sure in your own mind that the company to which you are committing your nest egg has approached franchising ethically, and has created a sustainable business proposition that you are well suited to making a success of.