What is Franchising & Why Do People Do it?
What is Franchising?
In short, franchising is an agreement between a ‘franchisor’ – usually a large company – and a ‘franchisee’ – normally an individual or a smaller, independent company. This agreement entitles the smaller business to the branding, awareness, and support of the larger company.
There are three main types of franchises:
- Business format – this is the most common type of franchise in the UK. This type of franchising permits the franchisee to use things like the logo, trademarks and general business format of an already established business.
Product franchise – in a product franchise, manufacturers let retailers use their name and trademark to distribute products.
Manufacturing franchise – although quite similar to a product franchise, a manufacturing franchise allows a manufacturer to both produce and sell goods using the name of the franchiser.
Aside from the standard initial fee, the franchisee will then pay a service fee. This service fee can vary depending on the franchisor, and is payable weekly or monthly.
Why do People Choose to Become a Franchisee?
You get to be your own boss…
One of the top reasons why people chose franchising is that it enables them to be their own boss. For those that have spent a lifetime being told what to do and more importantly when to do it, being in charge of your own time is a liberating experience. If you like getting up early or working late at night in order to grab a few hours of free time during the day then there is always some part of the operational aspects of the business that are not time specific. Your accounts, invoicing, marketing, and administration can all be done at a time that that suits you.
We’ve all heard of the lifestyle business; a business that works around your lifestyle rather than a lifestyle that fits around your business. Franchising is the perfect solution for people who need more flexibility. However, flexibility and the control that come with self management, can only be truly effective if it is accompanied by a desire to succeed and a self starter mentality.
Being your own boss also means you also get the opportunity to own your own business and there is a crucial difference between these two things. Many people who work for themselves are happiest when its just a one man band. There are many man in a van franchises, including oven cleaning or fixing dents in car doors, which need no more than transport and equipment to get you started. These types of franchises offer people the opportunity to work for themselves. However, working for yourself and owning your own business are not the same.
For many people the true definition of owning a business is when your organisation can perform adequately without you being there. Restaurants, coffee shops, and fast food outlets are all examples of franchises that can only be successful if they are run as businesses. They require considerably more investment but they offer the opportunity of expansion and a release from serving the coffee yourself.
You can learn by other people’s mistakes…
New businesses that are franchises are generally less likely to fail due to the fact that aren’t actually new businesses. They are extensions to existing businesses, think of it in similar terms of a business opening up a new office in a new location.
Expanding an existing business comes with it own set of challenges. Raising money for premises and working capital and then recruiting new staff can be a huge burden on a growing business, so franchising is an ideal solution. Existing businesses have expertise, experience, and brand awareness, while franchisees have money to invest, a knowledge of the locality and a desire to make the business work. This makes for a winning combination because it dramatically reduces the risk of failure.
If you’re a bit on the edge about taking risks, franchising is the way to go – you’re able to play it safe and still be successful without wasting time testing products and services.
With the knowledge that can be passed on to you, along with being part of a system that has already been tried and tested successfully, you will be more likely to avoid any mistakes that you may have made otherwise.
In a nutshell, there is less chance of failure and the resulting frustration by turning to a franchise.
Starting a new business when you have never run a business before is extremely daunting and there is little in the way of support and guidance available to budding entrepreneurs. With a franchise however you have access to a support team that have a vested interest in your success.
To say that a benefit of becoming part of a franchise is the help and guidance that you receive from the franchisor is understating this benefit greatly. The success of franchisees is extremely important to the franchisor, and the most successful franchisors offer a broad range of services that can not only kick start a new business but give it much needed support in dealing with some of the threats and weaknesses that new businesses have to contend with.
You’ll be your own boss, but at the same time if you’re ever struggling and need advice there will always be someone on the other end to talk to. The franchisors want you to succeed just as much as you do.
Whilst mentoring can be an ad hoc affair and normally handled verbally over the phone, training needs to be structured and all encompassing. Opening a business without a full understanding of how to market it, develop it and run it day to day would be suicidal but most non franchised businesses have to do this. However, being part of a franchise enables you to receive the training that you need in order to hit the ground running. With a franchise you will be trained in everything from sales, marketing, administration, and even recruitment when the time comes. There may be some areas you are weaker in than others, and with extra training provided by the franchisor you will be able to strengthen those areas and run your business to the best of your ability.
And it gets better…..
You don’t even need to have any experience in your chosen career path if you opt for a franchise – you will learn from them.
Finance & Profit
Saving money on things you would otherwise need to pay for is another benefit you would get by taking a franchise. Branding for letterheads and logos and designs, building and maintaining websites are all extremely costly, get them wrong and you will have to start again from scratch. Within a franchise such as an estate agency the head office normally deals with most administration tasks such as paperwork, taking calls and booking appointments; this leaves you to work without the additional costs of employees and a store front premises. Therefore, not only do you save money, but you also save time.
It’s also a simple fact that there is a higher chance of investors investing in an already established and effective business. If you had the chance to invest in a McDonalds restaurant of someone you had never heard of which would you chose?
The British Franchise Association found that for 20 consecutive years, around 90% of all UK franchisees reported profitability over the previous 12 months.
By becoming part of a franchise, you are becoming part of an already recognised brand or business.
This familiarity inevitably results in more confidence in you, and therefore brings in customers or clients, in turn creating more business. Recognition and a good reputation also puts you at an advantage over your competitors, as people are more likely to stick with companies they know and trust. As well as this, there is a chance that you will gain business quickly, which is less likely to happen with a newer and smaller business.
What’s more is as well as there being less work establishing the business, it will also cost less as not as much money will be needed to build up the company name and popularity.
The fact that you are entering an already successful business model by becoming a franchisee means you also have access to the connections made by the franchisor. All you need to do is use this network to your advantage and manage these connections when needed. Simple.
So, there has to be a downside right?
Of course there is a downside to franchising but its often better to look at it as a trade off against risk. The average cost of starting a franchise business is lower than a non franchised business but the trade off is that you have to share the ongoing profits. However, will the profits be higher given the training, brand awareness, and on going to support a franchise offers?
Overall, franchising will grant you many advantages you may not have if starting a business independently from scratch. You’ll receive training, support and recognition, benefit financially, as well as being part of a tried and tested system.