What is the definition of a franchise? A franchise is a self-employment business option for would-be entrepreneurs.
You launch your own business under a well-known brand with help and advice on everything from marketing to financial planning to human resources.
By offering others (franchisees) the right to operate their own business under your brand and processes, franchising allows small business owners to grow more rapidly and cost-effectively than by creating new company outlets. Legal measures have been put in place to preserve trademark management, consistency, and protection.
What is the mechanism behind it?
Franchising is similar to having a business plan. The concept is that the franchisor (original company) has gone through building a brand, gaining customer loyalty, and learning how to scale up the firm via experience.
Franchising teaches others how to duplicate your success. Domino’s or Subway has an established track record. If you’ve ever bought food from one of these establishments in the United Kingdom, the location you visited was managed by a franchisee, not a corporate brand. They are in charge of the employees and the goods, but they work under a larger brand.
Clarks Shoes, Thorntons, O2, Water Babies, Marston’s, Toni & Guy, and McDonald’s are just a few well-known franchised brands. There are also a variety of rising businesses in almost every industry, ranging from gyms to sports tuition and pet care to hair care, auto care, and health care.
“You’ll also need a terrific brand and some kind of market differentiation.”
Franchisees pay an initial fee and then monthly royalties after that (most commonly a percentage of turnover but a mark-up on goods supplied or flat fee are other options).
In exchange, clients get extensive initial training and continuous assistance from the franchisor. Whatever circumstance a franchisee finds themselves in, they may turn to head office and any other franchisees in the network for practical guidance and assistance.
When the franchisee is ready, they may sell their firm to a franchisor-approved buyer, allowing them to establish an asset while still working for themselves.
What are the requirements for franchising a company?
To be franchised, your organization must meet the following criteria:
I have proven – not just a theory, but concrete proof of effectiveness.
Profitable – enough for both the franchisor and the franchisee
Teachable – it’s pointless to franchise a firm that three individuals can only run.
Transferable – appropriate for a variety of locations (a surf store in Leicester isn’t a smart idea)
You’ll also need a strong brand and some kind of market distinction. It’s also critical that your company has a long-term appeal rather than becoming a passing craze.
Why do companies choose to franchise?
The following are some of the major benefits:
Expanding more quickly
If adequate care is taken to build up the franchise from the start, expansion may happen as quickly as the time it takes to recruit, onboard, and properly support franchisees.
Lower initial investment
Once the concept is in place, growth is mostly funded through franchisee investment, which means it is significantly less expensive to expand.
Lower long-term costs
A franchise head office employs a team of people to assist its network of company owners, but franchisees hire and fire employees, keep track of accounting, etc.
Franchisees will do everything it takes to succeed since they have a vested stake in the company, instead of a manager who is mostly compensated the same regardless. After converting a company-owned shop to a franchise, retailers have reported a 30 percent increase in turnover.
There is strength in numbers.
The most successful franchise businesses effectively integrate franchisees as a collaborative network of company owners, using the significant value of shared know-how, experience, and ideas from a collection of people pushing in the same direction.
What is the legal status of the relationship?
When the franchisor and the franchisee are confident that they are a good fit, they sign a franchise agreement. That’s critical Because joining a franchise should be a two-way due diligence process that takes time and requires clear thinking. Both sides must be selective to succeed.
The agreement is a legally binding contract that spells out each parties’ rights and responsibilities. Before signing, franchisees should have their agreement evaluated by a franchise lawyer.
The majority of franchise agreements are for five years with the option to renew. However, some premises-based franchises provide ten-year or even longer deals. The contracts may be long, with stipulations covering almost every element of the relationship, from the beginning to the end.
For franchisors, this document protects their IP, business model, and brand from misuse, alongside an operations manual that outlines the day-to-day running of the business by the franchisee.
What are some of the benefits of owning a franchise?
- Someone else should have gone through the trial and error (and related expenditures) of starting and expanding a firm; you should be left with what has been proved to work.
- Statistically, you are more likely to succeed as a self-employed person: Annual franchisee commercial failure rates are less than 5%, while around 90% report profitability.
- Experienced individuals can provide support on any element of operating a company.
- Because of economies of scale, they have access to technologies that an individual wouldn’t have.
- Being a part of a larger brand raises awareness, loyalty,, and expectations.
- Both the franchisor and other franchisees contribute their knowledge and expertise.
What about the drawbacks?
- Some processes must be followed; franchising isn’t for you if you’re seeking full freedom.
- The franchisor establishes policies and procedures that must be followed.
- You’ll have to pay the franchisor regularly.
- Because your company runs under the same brand as others, they may taint it.
What is the process of franchising a business?
Franchising isn’t something that happens suddenly; it takes time and money to do it right from the start.
A solid franchise model is unique to each company; using templates or boilerplates may be detrimental to your brand and should be avoided. This is especially true of the franchise agreement, which is at the core of safeguarding the brand you’ve worked so hard to build. Don’t attempt to save money on it.
However, there are certain similar procedures in franchising. A detailed business plan; ensuring IP protection and trademarks are in place; instructing a franchise solicitor to draught an agreement; creating an operations manual, which covers the day-to-day operations of the business for franchisees; a comprehensive training program for new franchisees; a marketing strategy to find and recruit franchisees; and, eventually, setting up a pilot franchise, with an outlet run ‘at arm’s length’ as a franchisee will hone the concept.
Franchise development experts may assist with any or all aspects of the process, and many will provide a free introductory consultation to explore viability. Getting the correct counsel from a British Franchise Association (BFA) licensed consultant is crucial; they have shown their awareness of the best practices and a track record of assisting firms with franchising.
What is the definition of a franchise? It’s a tried-and-true business opportunity that might be the perfect match. Visit the BFA website for unbiased information about becoming a franchisee or franchisor.
Pip Wilkins is CEO of the BFA.
Tips from a successful franchisee
Anna Jordan talks to Jim Haran, franchisee of BBX UK. He originally started out as a customer of the company and became a franchisee of the business after bartering over £500,000 worth of goods through the platform.
Jim and Mary owned a florist and were one of the first wave of BBX’s customers. After Mary retired last year, Jim had enjoyed working with BBX so much that he went on to purchase the Essex District and Sales franchise at BBX.
I was particularly drawn to the model of the business and everything associated with it. Great opportunities are presented to you and as long as you put in the work you can grow and develop the business as much as you want.
Before becoming a franchisee, I was a client of BBX with my floral company. I discovered that it contributed roughly £500,000 to the worth of our firm, allowing my wife to retire comfortably. It had a significant impact on our lives, and I could see the advantages for future consumers.
Bartering leads to franchise ownership.
I saw firsthand the advantages that bartering might offer to SMEs, but I also had a thorough understanding of the system and the problems that customers can confront.
Since of my firsthand experience as a BBX client, I thought my feedback would be helpful because I could observe the company from all angles. As long as you put in the effort, the company will allow you to grow, alter, and adapt.
Selecting a Franchise Area
For me, deciding on an area was a simple task. I chose the Essex area since it is close to my heart. Because I already had contacts with numerous companies in the region, I leaped at the chance to buy the franchise when it became available. Due to my proximity to work, I can be relatively flexible with my schedule.
I was lucky when I took over the Essex franchise. It was already well-established when I arrived, with pre-existing consumers and a regional knowledge that was beneficial to me when I first started.
“The primary franchisor provides back-up and assistance, so you’re never left hanging.”
The brand has a strong family feel, and the former owners are still active. I always value their opinions and advice on business difficulties and concerns that we encounter along the route.
Franchisees who are thinking about buying a franchise should read this.
Make sure you finish your assignment. Many individuals believe that buying a franchise is the same as buying a ready-made company, but this is not the case. When considering which franchise to join, think about what you can contribute to the company, bring to the table, and what you can do to help it grow.
From my perspective, franchising is safer than starting up your own business as long as you’re prepared to put in the work and don’t expect success to come quickly. It’s a tried and tested model and you are given backup and support from the main franchisor, so you’re never left hanging if there’s a challenge.
Once you’ve decided to go ahead with becoming a franchisee make sure that you utilize their support and advice.