Straightforward Guide To Buying A Franchise

Changing Your Life With a Business That is Right for You

• Publisher: Straightforward Publishing Digital
• Year: 2015
• ISBN:
  9781847165503
• Topic: Betriebswirtschaft
• Subtopic: Franchises

Buying a franchise is an important decision. This guide takes the reader through all the factors needed to arrive at a decision. With franchises, a person enjoys many of the advantages of an established business, such as a tried and tested product or service, a set of established operational guidelines and in most cases, a pretty good idea of whether or not the format will work in a chosen area or location. However, it goes without saying that a decision to enter into a franchise shouldn't be taken lightly. This book will assist in the process of researching.

Part 1

Franchising Generally

Chapter 1

What is Franchising?

Franchising-a definition and History

The word ‘franchise’ is used in several contexts. In most dictionaries, the word is defined as follows:

1.

A privilege or right officially granted a person or a group by a government, especially:

a. The constitutional or statutory right to vote.

b. The establishment of a corporation’s existence.

c. The granting of certain rights and powers to a corporation.

d. Legal immunity from servitude, certain burdens, or other restrictions.

2.

a. Authorization granted to someone to sell or distribute a company’s goods or services in a certain area.

b. A business or group of businesses established or operated under such authorization.

c. A brand name under which a series of products is released.

3. The territory or limits within which immunity, a privilege, or a right may be exercised.

You can see that particularly in the second definition, at its root, ‘franchise’ means that a right has been granted to someone or some group to do something or to have the power to do something-such as vote. In the context of this book, we are talking about business franchising.

What is business franchising?

In simple terms, a franchise is an agreement between two parties which allows one party i.e. the franchisee, to market products or services using the trademark and operating methods of the other party i.e. the franchisor. These rights are usually granted in return for a fee.

There are two types of franchise methods - business format franchising and product and trade name franchising.

Business Format Franchising

The most common method in the UK is Business Format Franchising. Using this method, when you buy a franchise, the franchisor grants you, the franchisee, the use of their logos and trademarks, as well as a turn-key system for doing business. This includes helping the franchisee with site selection, store layout and design, recruiting and training staff, marketing the business, preferred supplies contacts and more.

The franchisee in return has to pay an upfront franchise fee as well as ongoing royalties to the franchisor. The franchisor uses this money to help further develop the system through marketing, product and market research, and ongoing support.

There are many examples of business format franchising opportunities, including – food franchises, automotive franchises, estate agency franchises, retail franchises, recruitment franchises, children’s franchises, coffee franchises, pet franchises, fitness franchises, to name but a few.

Many of these are home-based franchises, part-time franchises and mobile franchises, and not all require a high level of investment, some are considered low-cost franchises. See the list of potential franchise areas at the end of this chapter.

Product and Trade Name Franchising

The other franchise method is Product and Trade Name Franchising. This type of franchising does not involve royalty fees. The most important thing that the franchisor provides to someone buying a franchise in Product and Trade Name Franchising is the product. The franchisee is required to purchase the product or range of products exclusively from the franchisor. The franchisor also provides national marketing and advertising campaigns, logos and trademarks.

This type of franchising is mainly associated with industries such as petroleum, soft drink distribution and automotive.

Product and Trade Name Franchising has three distinctive characteristics:

• The franchisee sells goods which are supplied by the franchisor or a person affiliated with the franchisor;

• The franchisor helps the franchisee to secure accounts or, depending on the type of business, locations or sites for rack displays or vending machines.

• Within 6 months of opening the business, the franchisee must pay the franchisor or a person affiliated with the franchisor

A brief history

The practice of franchising, providing a service in a specified territory for a defined fee, dates back hundreds of years, even going back as far as the middle ages. So, you won’t be involved in anything new! In more recent times, the mid 1880’s, the Singer Sewing Machine Company is credited with having set up the first modern franchise. Whilst the company manufactured on a mass scale, and sold its products on a mass scale it was unable to provide after care services, such as repairs and maintenance so split its sales areas into franchises and sold the rights to the brand, sales and after care to franchisees.

Other big business in the USA followed suit over time with General Motors establishing a franchise and the more obvious ones such as McDonalds, Burger King, Cocoa Cola and Pepsi Cola establishing worldwide franchises.

In the UK franchising also took off but people began to get suspicious of the practice due to its lack of regulation and the incidence of people being ripped off.

In the face of this growing concern, In 1977 as we have seen, the British Franchise Association was formed, created by the major players in the UK, such as Dyno Rod and the Wimpey Hamburger Chain. As with many trade associations, or umbrella groups, it came into existence to provide some sort of regulation in the industry. The big players were also concerned to ensure that their own business models didn’t suffer and that they could continue to attract franchisee’s.

The growth of franchising

It has been the case that, since the start of the current recession, franchising has out-performed other business start ups, in the main because with franchising most of the groundwork needed to set up a business has already been done and is in place. The franchisee steps into the shoes of an already successful business. You don’t have to come up with a unique selling point and start marketing from scratch. Training will be available in areas that you need and, in many cases, you will benefit from national advertising campaigns. Obviously, the bigger and more successful the brand, such as McDonalds or Subway, the more it will cost to enter the market.

Currently, there are over 40,000 franchise units in the UK. The average age of franchisees is 49, although people of all ages get involved. In reality, as long as finance is there, age is not a barrier.

Franchising sectors

If you want to get an idea of the different sectors in which there are franchise opportunities you should go to one of the main websites that have directories of franchises and also offer franchises for sale.

The best sites are:

www.franchisedirect.co.uk

www.thefranchisedirectory.net

www.franchiseinfo.co.uk

All of these sites will offer a comprehensive list of areas. In summary below are the main areas in which you will find opportunities:

■ Accountancy & Financial

■ Automotive & Car

■ Business to Business

■ Business Consulting

■ Business Opportunities

■ Business Training

■ Care Health and Senior Care

■ Children’s Franchise Opportunities

■ Cleaning Franchise

■ Coffee

■ Computers

■ Couriers

■ Dating

■ Education

■ Event and Wedding Planning

■ Fitness

■ Food

■ Gardening

■ Golf

■ Health & Beauty

■ Home Care

■ Home Improvements

■ Home Services

■ Internet

■ Magazine

■ Merchandising

■ Mortgage

■ Pest Control

■ Pets

■ Photography

■ Print & Sign

■ Professional Service

■ Property & Estate Agency

■ Recruitment

■ Retail

■ Safety & Security

■ Sport Franchise

■ Travel & Leisure

■ Vending

The list is not exhaustive. On the above mentioned websites, if you open up each sector you will see many more-sub divisions each with franchising opportunities. There will be one to suit you, no doubt. A word of warning-you will find the good, the bad and the ugly. There are many opportunities which would be a struggle. In short, franchising has become a business in itself, selling licences and making lots of money and leaving the person on the other end without adequate back up and support.

It is up to you to look deeply into a business opportunity and to see whether it is viable. Check it out with the British franchise Association. See if the franchisor is a member to begin with. You will find many really good opportunities and with hard work you can create a successful business. Avoid the areas where it is obvious, or should be obvious, that you would lose your shirt.

In the next chapter, we will look at whether franchising is right for you as an individual, whether you are suited and what qualities you need.

Now read a summary overleaf of the main points from Chapter 1.

***************

Main points ...