Franchises Made Easy

Some people think ‘franchises’ are ‘businesses packages’ – they are not…..

So what is a ‘business package’?

There are some organisations which enable the budding entrepreneur to start in business by providing the necessary equipment, expertise or training to do so within a package. For example, you need to start a business manufacturing garden ornaments. The package may includes a number of moulds and tools, the materials and a day’s training to show you how to use them. But then what happens… ?

So, ‘Business packages’ are not ‘franchises’.

So what is a ‘franchise’?

The term ‘franchising’ covers a variety of arrangements in which the owner of of a product, process, service or even just a name (in the terms of a celebrity) allows someone else to use it in exchange for some form of payment.

It is a method of starting a business which minimizes risk by using or emulating a tried and tested ‘business formula’. A contract is forged between ‘the franchisor’ – (the organisation that supplies the franchise) and ‘the franchisee’ – (the party that purchases the franchise).

The franchise package supplies most of the things that one needs to launch the business successfully: training, licence to use franchise name, customer base, supplies and raw materials, equipment, promotional material etc.

In addition to a set-up fee, the franchisor may charge an ongoing fee based on the percentage of sales or profits of the business.

The key point is that it should be a proven business system that is offered – not merely the right to sell a product or service.

Franchises generally fall into one of two categories;

• a ‘job franchise‘ (in which the franchisees actually do the work that provides the service to the customers)
• a ‘management franchise‘ (in which the franchisee is mainly organising others to do this labour)

It is important to appreciate the difference between the two categories because it will help you to find a franchise that suits your skills.

In order to prevent franchisees within the same organisation competing for the same customer base, territorial limits are often stipulated within the franchise agreement. Also, the franchise agreement may stipulate certain standards regarding the quality of service or products supplied by the franchisee, thus upholding the brand image.

When choices have to made, we tend to go for the ‘familiar’. Thus, a company can win business by ‘branding’ a product or service to make it more familiar to potential customers.

A franchise opportunity enables you to buy into this brand image and win custom that would otherwise go elsewhere.

Comments and Advice.

For many people franchising is an excellent way of starting up in business. It is in the franchisor’s long term interest for you to succeed and so there is often continuing support at hand, unlike buying an existing business or starting from scratch on your own.

You may feel that the restrictions stipulated in a franchise contract-with regards to your choice of suppliers, recruitment policy or products- may contradict the ethos of ‘working for yourself’. However, in the majority cases, these are in place to uphold the franchise brand name and are part of a successful business formula.

You may also find it painful to see a small percentage of your hard earned profits being diverted towards the franchisor. Again, in most cases, the majority of this money is spent on advertising and/or marketing and benefits the group as a whole.

When considering a franchise, try to understand why they are offering you the business in the first place. Very often, franchising is an extremely quick low-risk method of expanding a successful business across the world. The franchisee has the local knowledge and takes on the majority of financial risk. In return the franchisor is offering a successful business formula that has been proven to work. But before you go ahead, ask yourself whether the support, training, stock, experience and brand name justifies the investment asked.

Finally watch out for companies that create franchises as an ‘end product’.

Be aware that some companies use the term ‘franchise’ to describe what is really a commission agency, network marketing opportunity or other form of start-up. Don’t think that these are any good or real.