Franchise Article

What is a Franchise?

Franchising provides you a route into business ownership with the back-up of a larger organisation. By purchasing a franchise, new business owners are able to avoid enduring the learning curve of operating a new business by taking advantage of a proven business model and product. It’s an opportunity to be in business for yourself but not by yourself.

Moreover, banks have learnt that it can be safer to lend to franchisees. For an established franchise, most of the major banks will lend up to 70% of the start up costs, for new franchises the figure will probably be around 50%. Banks will normally expect the franchisee to have at least 30% of the ingoing cost of the franchise in unborrowed funds (liquid capital).

What is Franchising?

Franchising is a term often used to describe many forms of business relationships including distributor, agency, dealerships and even a series of films.

The businesses offered on Franchise Gator are called ‘Business Format Franchises’ which means the business (the franchisor) grants  another (the franchisee), the rights to trade under the trade mark/trade name of the franchisor and to make use of an entire package, comprising all the elements necessary to establish a previously untrained person in the business and to run it with continual assistance on a predetermined basis. Franchising can be described as a 'business marriage' between a 'franchisee' and a 'franchisor'.

Be in business for yourself but not by yourself.

Because you are investing in a proven and developed business system, there is rarely a requirement for relevant industry or business management experience. Rather franchising is providing you with a route into business ownership with the back-up of a larger organisation.

The advantages of buying into a franchise:

•           You don't have to come up with a new idea – you are buying into a proven tested system of doing business.

•           Larger, well-established franchise operations will often have national advertising campaigns and a solid trading name.

•           Good franchisors will offer comprehensive training programmes in the skills you will need to operate the business.

•           Good franchisors can also help secure funding for your investment as well as e.g. discounted bulk-buy supplies for outlets when you are in operation.

•           Customers prefer to deal with a branded business.

How does the franchisor franchisee relationship work?

The Franchise Agreement provides for training in the operation of a business and the implementation of the franchise concept. This is followed by ongoing support in activities such as launching the business, sourcing stock, marketing campaigns and attaining sales contracts. The franchisor maintains an interest in your business through the collection of a Management Service Fee - typically a small percentage of your turnover. This provides the incentive and the funding for the franchisor to maintain network support initiatives such as national marketing, ongoing training and product development, freeing you to concentrate on building a successful business.

What are the Cost Implications?

The franchisor will receive an initial fee from the franchisee, payable at the outset, together with on-going management service fees - usually based on a percentage of annual turnover or mark-ups on supplies. In return, the franchisor has an obligation to support the franchise network, notably with training, product development, advertising, promotional activities and with a specialist range of management services.