For those that are new to franchising this provides a quick guide to the industry and will provide a basic understanding of the concept, the variety of franchises avilable and what is involved in replicating a proven business.
How Franchising Works
Franchising could be described as a ‘business marriage’ between an existing business (the franchisor) and an individual (the franchise owner).
The franchise owner buys the licensed rights to clone the franchisor’s business concept in a specific territory for a specified period, backed by full training and support from the franchisor.
The franchisor provides a ready-made, established and tested business format including name, corporate power, know-how, training and ongoing support services. Investing capital, time, effort and any relevant past experience to create their business, the franchise owner replicates the franchisor’s business formula/system, gaining a safer, more structured, brand-led way of moving into independent business.
The franchise gains a new outlet in a new territory with minimum capital investment in setting it up.
Six Basic Types of Franchises
The franchise owner puts up substantial funds to capitalise on a high-cost franchise system and, although retaining overall strategic management, invariably hires others to manage the franchise outlet. Examples are hotel and multi-unit restaurant franchises.
The franchise owner controls several territories or a region, or manages a team of operatives. Examples are van-based franchises run from regional HQs, depots or hubs.
The franchise owner runs a one-man white-collar business in areas such as financial services, personnel or project management. Premises are not vital because the work tends to be undertaken on client premises. Examples are debt and cost control consultancy franchises.
The franchise owner makes a significant investment in commercial property, equipment and staff to help operate a high-yield business system, which can often be sold at a profit should the franchise owner later wish to retire and capitalise on the investment. Unlike the investment franchise, owner-operators are the norm here. Examples include high street fashion and hi-fi chains.
The franchise owner is largely on the road, selling and/or distributing products in the territory - other driver-delivery personnel can then be hired to cover areas as the customer base grows.
Mobile Servicing (Job) Franchise
The franchise owner makes a lower level of financial investment to buy the right to operate (typically) a man-and-van home-based service, installation and/or repair business in areas like cleaning, motor services and maintenance.
Bear in mind most franchisors now like to view their opportunities as more mature 'management franchises'. Even those starting as job-type franchises are generally accompanied by encouragement for franchise owners to aspire to developing a management franchise - whereby they employ operatives and focus more on managing and growing the business.
Inevitably, most successful franchise owners are those who approach their selected franchise opportunity after careful thought and thorough research. Here are just some of the most important things you'll need to consider:
You'll be investing savings, rollover, redundancy pay, compensation, inheritance, or a loan to set up and operate the business in return for access to the franchisor's systems, know-how, training and ongoing support.
Certainly at first, you'll need to live and breathe the business to the exclusion of all else so it builds on a stable foundation
You'll need to make a determined effort to learn, build and sustain the business, and that will often involve unsociable hours and going an extra mile (or two).
You'll almost certainly need some support - and that's why your spouse and/or family are often expected to assist in running the franchise.
You'll be giving up paid employment, unemployment benefit, company pensions and control over a possibly re-mortgaged home or savings in favour of borrowing commitments, debt servicing and debt chasing.
Remember that any management, accounting, technical or administrative skills you have can be transferable. Where relevant and applicable to the franchise, they can be invaluable.
Don't forget to consider the implications of tied supplies, mark-ups, royalties, marketing and other per cent levies on your margins.
Unlike a self-start business, you'll be entering a contractual (albeit constructive) relationship with the franchisor - especially regarding work methodology, operating procedures, and maintenance of quality standards. You'll be foregoing the right to conduct a similar business of your own and be restricted in the choice of buyers for your business when you want to sell it on to realise your investment or move on to pursue something else.