business franchises & franchising
guide
to buying a franchise - small business franchises or large international
business franchises - information on selecting opportunities, franchises for
sale, and franchising tips
Business franchising is one of the safest and most risk-free
ways to start up and run a successful business.
However running a franchise isn't for everyone, so take time to
understand what running a franchise entails - especially the selling aspects -
before you decide to buy a franchise business.
Business franchises and franchising opportunities are increasing
internationally. This is because the business franchising formula and the
franchising model is proven and successful.
Here are the essential tips for identifying and selecting the
best business franchise opportunities for yourself, whether you want a small local
business, or a very big franchise business.
choose
a franchise business that you'll enjoy
Buying a franchise that you will enjoy is the most important
factor of all. Most businesses - all types of business, not just franchises -
succeed when the owner truly enjoys the products and/or services that the
business supplies. If you really enjoy and are interested in the products and
services, and the customers and markets, then you will learn and gather
information and skills rapidly. If you enjoy the business it is likely that you
will possess a good deal of knowledge about it already. Being an expert and a
specialist at what you do is essential to running any successful business -
enjoyment and expertise naturally go hand-in-hand. You will find it easy to
specialise and become an expert in an area that you enjoy quite simply because
it is a pleasure and a joy - not a chore. When you work in a service or product
area that you love, you will enthuse about it, and your enthusiasm will be
conveyed to your customers and everyone you meet. People like to deal with
enthusiastic suppliers - people who love their work. When you enjoy the subject
of your franchise business you will naturally put in more effort than if you
worked in a field that fails to inspire and excite you. People who love their
work always work hard and put in more hours. Their work becomes part of their
life, rather than it being just a means to pay for their living costs.
research the best franchises
There are thousands of different business franchises, and there
will be more than one and perhaps many in your chosen business area. Once you
have made the decision to buy a franchise business it is difficult to turn
back. A wrong decision takes a few seconds to make, and for some, a lifetime to
put right. So do your research. Look at the alternatives. Ask existing
franchisees. Ask customers. Ask bank managers. Read the franchise trade
magazines, newspapers, websites. Attend franchising exhibitions. Seek the
advice and opinions of friends. Do some local market research to gauge demand
for the products and services, to test the reputation of the franchising
companies, and to test their claims about pricing and any other relevant
business claims or information you've been given. Become an expert before you
sign the papers - don't wait to learn about the 'unknowns' after signing the
contract and parting with your cash.
These days information is easy to find - don't be shy - look for
it - ask and satisfy all of your concerns before you make your decision.
trust
your instincts
When you buy a business franchise of any sort you are entering
into a business partnership, in which your relationship with the franchisor (or
'principle'), and their people, will be absolutely crucial to your success. You
must be able to trust and work with the franchisor and the franchise company's
staff - especially the directors and senior managers. If you have the slightest
doubt as to the integrity of any of the people within the franchising company
think extremely carefully before you go ahead with them. Trust your instincts -
if you feel uncomfortable during the selection and recruitment stage it is
likely that there are grounds for concern. Feeling uncomfortable about trust
and relationships may not necessarily mean that the franchisor is
untrustworthy, but it does probably mean that the 'fit' may not be right for
you. Relationships are personal things - some people you'll get on with and see
eye to eye with; others you may not. You will be more likely to succeed, and
receive a good level of appropriate support, if there is a good emotional 'fit'
with the franchisor. Trust your instincts to tell you whether the franchising
company has a similar value system and ethos to your own. If you value the
customer above all else, do they too? If they do not then they may not be fully
in tune with your style and business philosophy. Finding a good emotional and
philosophical match with your chosen franchising company is almost as important
as choosing the right sort of business. Given sympathetic and genuinely
relevant support we can achieve almost anything - be sure that your franchise
partner will be able to provide it.
look
for a good business profit model
Successful businesses - not just franchises - are always based
on a sound and healthy business and
New innovative products and services with protected technology
and new growing markets make ideal franchise businesses. This is because demand
exceeds supply, which enables price levels to be maintained, and the protected
technology limits the effect of competition.
Businesses with strong brand names and reputations also tend to
have stronger financial models. This is because customers are prepared to pay a
higher price, and will more often say yes, to receive a trusted product or
service.
Mature products and services tend to have less strong financial
models. This is because time has enabled competition to develop - alternative
products, services, technologies and suppliers. Maybe routes to market are no
longer appropriate for franchise business operators. Would you take a local
door-to-door book or CD franchise given the dominance of the huge online
distribution businesses? Not likely. If there is a better and more cost
effective route to market than through a franchise business it is likely that the
financial and profit model of the franchise in question is under pressure.
Seek out franchises with modern technology, innovative protected
products and services, a strong brand and reputation, with growing markets,
where the route to market favours the franchising business model. These
opportunities will almost certainly be the ones which offer the strongest and
best profitability.
look
for high integrity propositions and franchisors
High integrity is essential for two crucial reasons:
- You will keep your peace of mind,
and sleep at night. The world is full of miserable millionaires - people
who have exploited others to make their money - don't be seduced by this
false dream. Always behaving and deciding with high integrity will keep
you safe, well, and probably make you wealthier too.
- You will delight your customers and
good word will spread, which is vital for local service businesses, which
nearly all franchise businesses are. Local businesses live or die by their
reputations. Behaving with high integrity will automatically ensure that
your reputation shines and grows. Many well established successful
franchisees never need to advertise or look for their next customers -
their customers find them.
If you buy a franchise that lacks integrity, then with all the
best will in the world, you will be pushing water uphill.
Look for and buy a franchise which has high integrity at the
centre of its products, services and business ethos, and you are half way to
running a high integrity franchise business - all that remains is for you to
ensure that your own input and activity are high integrity too.
understand
the financials
You don't need to be Gordon Gekko, but you do need to understand
the essential things:
What is the level of investment and what do you get for it - is
it good value? Or is it all smoke and mirrors?
How long will it take you to recover your investment - in other
words what is the payback period - how quickly will the franchise realistically
and reliably get into profit? This is a crucial indicator, and one which you
must understand and be assured that it is acceptable and achievable before you
buy any franchise.
What are the running costs of the franchise? - Some will be
fixed overheads, (such as vehicle lease repayments, plant and tools, franchise
fixed repeating fees, your wages, other staff wages, premises and heating, etc)
some will be variable 'cost of sales' dependent on your sales levels and
volumes (such as materials and additional labour, possibly fuel etc); and some
will be other variable costs necessary to promote and expand the business (such
as advertising, printed materials, training, etc). Get a clear idea of what
these costs are. Be able to see and understand them over a year, broken down
month to month.
What working capital will you need? - This is the amount of
money required for the business running costs, including your own salary(ies),
before the business begins to make a profit necessary to fund itself and your
wages.
What borrowing or loan arrangements are required, and can you
afford the repayments, given the working capital requirements of the new
business, and the rate of expected business and profit growth?
What alternative borrowing or loan arrangements are available -
look around - negotiate hard. If you do not ask you will not get. No back
manager will offer you their best possible rate until or unless they feel they
have to. Have an alternative - play one lender against the other. The most
important rule of any negotiation is having an alternative - being able
to walk away. This applies also to when you come to buy the franchise itself -
sometimes there is room for negotiation. Again, if you don't ask you won't get.
Buying a franchise can become like buying a house - if you get your heart too
set on one single option then you have exactly that - just one option; and no
room to negotiate. If you find two options you immediately increase your power
in the discussions, and you will feel more liberated in your decision-making
too. Understanding the relative financials is an important aspect of comparing
franchise opportunities. Work at using the key financial figures and indicators
and you will quickly become accustomed to making these judgements, which in
turn will make you stronger in your discussions and negotiating before buying
your franchise.
understand
the meaning of contracts
The business contracts that are signed by the franchisees and
franchisors represent the agreement and terms of trading between the two
parties. The contract terms and conditions (the T&C) over-ride and
supercede any other agreements you think you've made, or things you believe you
have been promised. What is written in black and white, and signed by both
parties, is the agreement you have made. Nothing else matters - so take time to
understand this part of the process, and question anything that you don't like.
It is no use in a subsequent dispute or misunderstanding to refer to a discussion
or verbal commitment. If it ain't in writing and signed, then it ain't any use
to you. So whatever you do, and however good your instincts are - read
and understand the contract.
If you understand the contract you will achieve far greater
control over your legal advisors (whose fees can escalate considerably when
clients fail to understand what's going on), and also greater control over the
other side and their advisors, and you will generally be able to negotiate a
much more advantageous outcome.
You don't need to become a lawyer - just understand what the
contract means - you'll be surprised how easy it is if you take a bit of time
to learn.
buying a franchise
The following information about
selecting and buying a franchise business is provided by Business Link, which
is gratefully acknowledged. While the information is essentially for the UK
franchising market the principles are generic, sensible, and transferable to
anywhere. The material is subject to Crown copyright. For further information
visit the Business
Link website.
Taking on a franchise is an option worth considering for anyone
who wants to run
a business but
doesn't have a specific idea or prefers the security provided by an established
concept.
The right franchise can give you a head start. Instead of
setting up a business from scratch, you use
a proven business idea. Typically, you trade under the brand
name of the company offering you the franchise, giving you help and support.
Successful franchises have a much lower failure rate than
completely new businesses. But it isn't all plain sailing. Some franchises are
better than others. And some people find that running a franchise just isn't
for them.
This guide will help you decide whether franchising is for you.
It shows how you can find the right franchise, and highlights the key issues
you need to consider.
what is franchising?
The term franchising can describe some
very different business arrangements. It is important to understand exactly
what you're being offered.
'business
format' franchise
This is the most common form of franchising. A true business
format franchise occurs when the owner of a business (the franchisor) grants a
licence to another person or business (the franchisee) to use its business idea
- often in a specific geographical area.
The franchisee sells the franchisor's product or services,
trades under the franchisor's trade mark or trade name and benefits from the
franchisor's help and support.
In return, the franchisee usually pays an initial fee to the
franchisor and then a percentage royalty on sales, although some franchising
arrangements do not include a royalty payment.
The franchisee owns the outlet it runs. But the franchisor keeps
control over how products are marketed and sold and how their business
idea is used.
Many well-known businesses offer franchises of this kind,
including famous brands in sectors such as fast food, drain clearance, print
and copying, cleaning chemicals, pet food deliveries, and automotive repairs.
other
types of sales
Different types of sales relationships are also sometimes
referred to as franchises. For example:
- Distributorship
and dealership - you
sell the product but don't usually trade under the franchise name. You
have more freedom over how you run the business.
- Agency - you sell goods or services on behalf
of the supplier.
- Licensee - you have a licence giving you the
right to make and sell the licensor's product. There are usually no extra
restrictions on how you run your business.
a
word about multi-level marketing
Some businesses offer 'franchises' that are really multi-level
marketing. It is fair to call many of these businesses 'pyramid schemes'.
Self-employed distributors sell goods on a manufacturer's behalf. You get
commission on any sales you make, and also on sales made by other agents you
recruit. However many of these multi-level marketing organizations do not represent
the proper spirit of franchising: many do not give good support, many are based
on poor-integrity business models, and some multi-level marketing schemes are
downright dishonest and illegal. So be warned.
advantages and disadvantages of franchising
Buying a franchise can be a quick way
to set up your own business without starting from scratch. But there are also a
number of drawbacks.
advantages
- Your business is based on a proven
idea. You can check how successful other franchises are before
committing yourself.
- You can use a recognised brand
name and trade
marks. You benefit from any advertising or promotion by the owner of
the franchise - the "franchisor".
- The franchisor gives you support - usually including training,
help setting up the business, a manual telling you how to run the business
and ongoing advice.
- You usually have exclusive
rights in your
territory. The franchisor won't sell any other franchises in the same
region, though there will be competition from other businesses.
- Financing the business may be easier. Banks
are sometimes more likely to lend money to a franchise with a good
reputation.
- Risk is
reduced and is
shared by the franchisor.
disadvantages
- Costs may be higher than you expect. As
well as the initial costs of buying the franchise, you pay continuing
royalties and you may have to agree to buy products from the franchisor.
- The franchise agreement usually
includes restrictions on how you run the business. You
might not be able to make changes to suit your local market.
- The franchisor might go out
of business, or change the way they do things.
- Other franchisees could give the
brand a bad
reputation.
- You may find it difficult to sell your franchise - you can only
sell it to someone approved by the franchisor.
- Reduced risk means you might not generate vast
profits.
are
you suited to franchising?
As with any new business venture, you need to carefully consider
whether you have got the right skills and attitude to run a successful
franchise. Analysing your own temperament can also help you decide which type
of franchise would be right for you.
assess
yourself
- You must be prepared to sell.
A franchise gives you a business blueprint - but it won't give you
customers.
- You'll need to work
hard, probably for long hours. Do you have the necessary stamina?
- Running your own business can be stressful.
Think how you react to pressure.
- You may be starting up in business
because you want to be your own boss. If so, would you be happy
with the restrictions imposed by a franchise arrangement?
- On the other hand, you may want to
limit your
risk. You might be more comfortable with a franchise than starting a
new business from scratch.
the
right franchise for you
- Do you like office work? Or would
you prefer a business that involves physical labour?
- Are you happy working on your own?
Or would you be good at recruiting, training and managing employees?
- Do you like dealing with members of
the public? Or would you prefer a franchise where you sell to business
customers?
- Are you weak in particular business
skills such as finance? Can you find a franchise that offers the support
you need in those areas?
research possible franchises
You can find out about possible franchise
opportunities from a range of sources.
A useful starting point in the UK is the British
Franchise Association. As well as offering guidance and seminars on
franchising, it provides:
- details of members who may be
offering new franchises
- details of members who may be
offering existing franchises for resale
Franchises are advertised and written about in various national
newspapers and in trade publications such as Dalton's Weekly and Franchise
World.
Websites such as Whichfranchise and Franinfo can be a useful
source of information on franchises. You can find other listings using a search
engine and employing search terms such as franchise opportunity or franchise
directory.
Attending a franchise exhibition can also be a good way of
finding out what's on offer. Details of some major exhibitions are available from
FranInfo.
Do tread carefully. Advertised franchise opportunities -
particularly multi-level marketing schemes - can be untried, dishonest or even
illegal. Assess the franchise opportunity carefully and check whether the
company offering the franchise is a member of the British Franchise
Association, or your own country's equivalent.
assess the franchise opportunity
To assess whether a franchise
represents a sound business opportunity, you'll need to consider:
- what the business is and how it operates
- the location of the franchise
- the success of the franchise concept - the
number of franchises in the UK and how financially successful they are
- the strength of competition from other businesses
- how long the franchisor - the company offering the
franchise - has been in business and how financially secure it is
- levels of initial and ongoing costs
- how much training and support you'll get in setting up and
running the business
- conditions and restrictions in the franchise
agreement, including how long it will run and whether you'll have the
option to renew
The franchisor will probably give you an information
pack but
you shouldn't just rely on this. Ask questions and look for evidence of their
claims.
Visit other franchisees and
talk to them. Ask the franchisor for a full list of past and present
franchisees, not just the two most successful ones.
Take advantage of other sources of information and advice. Ask
your bank - many have franchising specialists. And make the most of other
advisers such as Business Link, your solicitor or your accountant.
write an outline business plan
This doesn't need to be War and Peace -
a basic outline is enough to tell you (and your bank manager) whether your
preferred business franchise is a sound proposition or not. Just as you would
for any other business, you need to draw up a business plan when buying a
franchise.
The costs of a franchise
When calculating the likely cost of a
franchise, you need to take both initial and ongoing fees into account. You
must also take into account what 'working capital' you need - this is the money
you and the business need in order to run and survive before profits (and
cashflow) are generated.
initial
costs
The franchisor - the company which sells you the franchise -
usually charges an upfront fee. This should be a relatively low
administration fee. Good franchisors make most of their profits from continuing
royalties. (this is the Business Link view - I personally think that there are
examples of very good franchises
Your largest initial costs are usually your investment in:
- premises and/or vehicle(s) - (many
franchises are
- equipment
- initial stock
continuing
costs
You usually pay a royalty - a
percentage of sales - to the franchisor. Alternatively or additionally you may
pay a management fee of some kind. It is common also for franchisors to derive
revenues from the franchisees through the supply of stock, marketing materials,
and training etc.
Under the terms of the franchise agreement, you may have to
purchase stock from
the franchisor. Check what they charge. They may mark up the prices - or they
may be able to offer them to you at a discount because of their purchasing
power.
You also have to pay the usual business costs - for example,
rental on premises, utilities or the costs of any employees you take on. Again,
check whether anything you pay for through the franchisor has a realistic cost.
Check too whether the agreement includes additional charges. For
example, you may be required to pay for training,
or contribute to the cost of national advertising campaigns.
how to select and buy a franchise
There are a number of key things you
should and shouldn't do when planning to purchase a franchise.
do
- Assess yourself to see what kind of
franchise, if any, will suit you.
- Find out what franchises are
available.
- Assess franchise opportunities
carefully, ask questions and talk to other franchisees.
- Investigate the financial prospects
for the business.
- If you'll need to raise bank
finance, ask your bank if it will consider a loan for the type of
franchise you're considering.
- Do your own market research into
customers and competitors in your area.
- Draw up a business plan.
- Check the franchise agreement and
get professional advice.
don't
- Take up the first opportunity before
investigating alternatives.
- Allow yourself to be hurried into
making a decision.
- Pay any non-refundable deposit.
- Commit yourself before you're
completely satisfied.
- Assume a business will work in your
area just because it works elsewhere.
- Rely on the forecasts provided by
the company selling you the franchise.
- Sign any agreement without legal
advice.
tips
on franchise agreements and contracts
The franchise agreement is crucial. Don't sign any agreement, or
pay any fees or deposit, until you have taken legal
advicefrom a solicitor. Get a specimen contract for them to review.
Here are definitions of contracts and agreements legal terms which will help
you to understand yourself the basic contract meanings.
areas
covered by a typical agreement
- Term - how
long does the franchise last? Will you have the option to renew it, and on
what terms?
- Territory - what area does your franchise cover?
Do you have exclusive rights to sell within it?
- Fees - what initial fee will you pay? What
royalties will you pay on sales? Will you pay a regular management fee?
Will you have to pay other costs? How are the costs worked out?
- Support - how
much help will you get starting the business? What continuing support will
you get?
- Restrictions
- what
restrictions are there on what you're allowed to do and how you must run
the business?
- Exit - what
happens if you can't continue in business for some reason - perhaps due to
ill health? What happens if you want to sell your franchise?
buying
and starting a franchise - a case study
Business Link provide the following new franchise case study,
which gives a real first-hand perspective of the issues:
Entrepreneur and trained optometrist Stephen Halpin always
intended to run his own business. In his chosen market, the high street optical
services sector, a franchise seemed like a good way to get a head start. After
considering the options, Stephen bought one of the first Boots Opticians
franchises in Northwich, Cheshire. Here is the story, lessons learned, and tips
from the experience:
select
the franchise
"The retail optical services market is highly competitive
and starting an outlet in your own name is a risky affair. A franchise made
sense, because it reduces some - not all - of the risks, offers a familiar
brand name to build on and provides support with marketing and other aspects.
There are several franchisors out there and I considered them all. I decided to
go for a Boots Opticians franchise."
"Boots' reputation with UK consumers is excellent and brand
awareness is almost universal. Also, because I was applying for one of the
first Boots Opticians franchises, there was more scope to get involved in
developing the operational systems. This was important to me I found that
longer-established franchisors had a less flexible attitude."
work
out the figures
"With the help of an accountant, I put together a detailed
business plan. The store I wanted to take on had been trading as a Boots
Opticians for several years so it had financial records to assess. Other
factors I considered were the store location, local competitors and current
operational practices. Without a clear idea of how much the business could make
and how much cash I needed, it would have been impossible to tell if the
franchise agreement on offer was worthwhile."
check
the agreement
"The business plan also formed the basis of the
presentation I gave to Boots' management. This was a key part of the process of
being accepted for the franchise. The presentation and plan also gave me the
information I needed to negotiate a contract. Following the presentation we had
a number of conversations about the principles of any agreement."
"Once I had been accepted for the franchise, Boots drew up
a franchise agreement setting out terms, conditions and fees. I got advice from
specialist franchise solicitors before signing. One of my key objectives was to
ensure that the agreement benefited both parties, that I made money and so did
Boots."
"Starting from this position, I didn't accept the initial
agreement and was able to change a few things. I wanted an incentive to grow
the business, rather than just keep it ticking over, and Boots recognised that.
One very useful point we negotiated was a deferment of payment on the upfront
licence fee, which is one of the biggest franchise costs. I paid a portion on
signing, the rest a few months later. It meant I had to borrow less in the
early days."
lessons
learned...
get
even more advice
"I made use of professional advisers and also had help from
Boots, who paid for a course covering tax planning, regulatory compliance and
so on. Even so, I wish I'd had more advice, especially with regard to
employment law and the impact of VAT on the business."
understand
'TUPE' better
"TUPE (in the UK) stands for the Transfer of Undertakings
(Protection of Employment) Regulations. It's a piece of legislation that's
concerned with the transfer of staff from one employer to another. As I was
taking on existing staff with the franchise, a better understanding of TUPE
would have been helpful during negotiations."
(This issue is only relevant to franchisees who are buying an
existing business, with obligations to existing staff.)
franchise
tips summary
- "Don't assume a franchise is an
easy, risk-free option - you'll be running your own business with all
the responsibility and hard work that running a business entails."
- "Use professional advisers and
make sure they're franchise specialists."
- "Negotiate your agreement and
don't think you have to accept the first set of terms put in front of
you."
More May you interest :7 Steps to Finally Master Content Promotion in 2016
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