5.05 – Finding Your Way Through Franchising
Franchising can be an excellent first step into self-employment, especially for those with business experience but limited experience running their own business. It provides a structured pathway to becoming an entrepreneur with the support of an established brand and business model.
Understanding Franchising
Franchising is a marketing technique used to expand the distribution of a product or service. The franchiser supplies the product or service and trains the franchisee, who then sells it to the public. In return, the franchisee pays a fee and a continuing royalty, usually based on turnover. The franchiser may also require the franchisee to buy materials or ingredients from them, creating an additional income stream. This arrangement offers a relatively safe and quick way to start a business, supported by an experienced organization.
Franchising allows the franchising company to expand with minimal capital strain, leveraging a team of motivated owner-managers. However, franchising isn’t for everyone. It’s not a path to great riches, nor is it suitable for those with a fiercely independent spirit, as policies and profits are largely controlled by the franchiser.
Types of Franchises
Franchises can be categorized into three main types:
Business Format Franchises
These franchises involve established brands with physical premises and employees. They require higher investments, typically ranging from £20,000 to £120,000, to cover stock, equipment, and locations. This category includes retailing, food services, and business services like high-street printing shops. The British Franchise Association notes around 935 companies offering such opportunities.
Investment Franchises
These require significant investments, often over £120,000. Examples include hotels and large fast-food outlets, with some requiring up to £750,000. Franchisees in this category typically manage multiple franchises and do not work in the business day-to-day.
Job Franchises
These involve smaller investments, usually between £7,000 and £20,000, and are often single-person operations like plumbing, building services, or recruitment. They offer training, customer leads, and support from the franchiser, making them suitable for those with limited capital but specific skills or a willingness to learn.
Defining a Franchise
A franchise agreement is a business contract outlining the expectations and obligations of both parties. Key elements include:
- Permission to use the business name and association with the larger enterprise.
- The franchiser’s right to set and enforce business and product standards.
- The franchiser’s obligation to provide training, support, and guidance.
- Details on how the franchisee pays for the franchise rights, such as royalties, initial fees, marketing levies, and mark-ups on supplies.
Membership in the British Franchise Association (BFA) and adherence to its code of practice are beneficial but not guarantees of success. Prospective franchisees should research and seek advice from franchisers, current franchisees, financial advisors, and legal professionals.
Questions to Ask Before Choosing a Franchise
Before committing to a franchise, consider these critical questions:
- Has the franchiser operated a pilot unit in the UK for at least a year? This experience is essential for understanding potential challenges and providing effective guidance.
- What training and support are included in the franchise package? This should cover support staff during the launch and access to ongoing advice.
- How substantial is the franchise company? Review their balance sheet and the track record of their directors.
- Does a major bank offer financial support for buying this franchise? This can be an encouraging sign of the franchise’s credibility.
You can meet franchisers and learn about their offerings at franchise exhibitions held throughout the year. The BFA website provides details on these events.
Exploring Pop-Up Businesses
Pop-up businesses are temporary ventures that have gained popularity in recent years. They range from charity shops and car parks to pop-up gardens, cinemas, and restaurants. London, with its dynamic property market and media presence, is a hotspot for pop-ups.
Websites like www.londonpopups.com and www.popupspaceblog.com provide information and resources for those interested in starting a pop-up business. For a comprehensive guide, “Pop Up Business For Dummies” by Dan Thompson is a recommended read.
Additional Considerations
- Due Diligence: Thoroughly research potential franchises, including speaking with existing franchisees and reviewing financial documents.
- Legal and Financial Advice: Consult professionals to understand the implications of the franchise agreement and ensure it aligns with your business goals.
- Support and Training: Ensure the franchiser provides adequate support and training to help you succeed.
- Flexibility and Commitment: Be prepared for the level of commitment required and ensure the franchise offers the flexibility you need.
