Beginners Guide To Franchising
You’ve decided that you want to run your own business and have heard that franchising is one of the most successful ways to achieve this goal. Here the roles of the franchisor and franchisee (franchise owner) are explained.
What Is A Franchise?
Franchising is a business system, which offers a wide range of opportunities for everyone to become their own boss, without the risks associated with new start-ups.
A franchise is a business arrangement between a company with a proven system for doing business (the franchisor) and an individual who wishes to clone that system (the franchisee). In return, the franchisor gains a new outlet in a new territory with minimum capital investment in setting it up.
Tried And Tested
The majority of franchise opportunities are made available once the franchisor has run the business for as number of years in order to prove that the model is successful.
It will be at this point that the franchisee will be able to buy licensed rights to copy the model, normally in an agreed territory for a set number of years. A franchisee's primary investment is the capital to set up the business and ti me, eff ort and experience to run it.
The franchisor provides protected know-how, brand, anuals, equipment, products, operational systems, experience, expertise, training resources and support services – all designed to successfully launch and sustain each franchise.
What is important in franchising is the completeness of the package, which should be offered under a Franchise Agreement, one in which all intellectual property rights are fully protected and which the uniformity of the network is co-ordinated by the franchisor.
What’s In A Name?
The franchisor must ensure their franchise owners (franchisees) are adequately trained, supported and quality controlled, with an emphasis on detailed manuals acting as reference material for operating the business.
Make sure that you receive the full franchise package from your chosen franchisor. Remember that even if it is well known, respected and instantly recognisable, a name is not enough.
A household name may be worth a licence to anyone wishing to trade under a global brand’s goodwill, but without the business system, it would not be a true franchise. Not all franchises are big established names, and often that is not a bad thing as it could work to the franchisee’s advantage.
Everyone has to start somewhere; even the big names of today began as single, unknown brands operati ng from one unit.
In such cases this would provide franchise owners with an opportunity to get into an up-andcoming franchise at ground level – preferably with pilot concessions such as reduced/waived licence fee and Management Service Fees for the first year – and may be more relevant to some people’s investment capability than the more established and costly franchises.
The franchisee invests substantial funds to capitalise on a high-cost franchise system and, although retaining overall strategic management, invariably hires others to manage the outlet.
The franchisee controls several territories or a region, or manages a team of operatives.
The franchisee runs a one-man, white-collar business in areas such as financial services, personnel or project management.
The franchisee makes a significant investment in commercial property, equipment and staff to help operate a high-yield business system.
Sales & Distribution
The franchisee is largely on the road, selling and/or distributi ng products in the territory.
The franchisee makes a lower level of financial investment to buy the right to operate a ‘man and van’ home-based service, installation and/or repair business in areas like cleaning, motor services and maintenance.
The Choice Is Yours
Whatever the franchise, you need to possess ambition, a willingness to follow the system and be prepared to work hard. Your independence as a franchisee will be considerable, but will be limited by the Franchise Agreement.
The franchise you eventually choose will depend on your level of investment, ambition and working preferences, the chances of success are considerably greater than if you tried to set up your own business independently.