Franchising (or business format franchising, to be accurate) is the ‘granting of a licence by one person (the franchisor) to another (the franchisee), which entitles the franchisee 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’. In other words, one person copies another’s proven business and also receives support in exchange for an upfront payment (the franchise fee) and ongoing fees (proportion of turnover or mark-up on supplies).

Each business outlet is owned and operated by the franchisee. However, the franchisor retains control over the way in which products and services are marketed and sold, and controls the quality and standards of the business. Some companies choose to grow by granting a licence to others to sell their product or service.

However, no business can offer a guarantee, and anyone thinking of investing in a franchise should take professional, legal and financial advice before parting with any money. This is recommended by the British Franchise Association (bfa), and any reputable franchisor will only want to recruit people as franchisees who can make a business work; otherwise the business reputation will suffer and that is bad news for everyone.

The bfa is concerned with developing and controlling good and ethical franchising among its member franchisors. The following are the principles that are applied to franchisors applying for membership; as part of their application, franchisors are expected to demonstrate how they meet these standards and to provide evidence where appropriate.

• Viable: the business must be viable; evidence will show that the product or service is saleable, and at a level of profit that will sustain a franchised network.
• Transferable: there is a means for the transfer of the know-how involved to a new operator at arm’s length – essential if the business is to be franchised.
• Ethical: the franchise is structured and operated in accordance with the ethical principles set out in the European Code of Ethics for Franchising; the applicant’s franchise agreement is formally assessed.
• Disclosed: all information on the business that is material to the franchise proposition and contract is disclosed without ambiguity to prospective franchisees.

Franchising is an option for those who have some money to invest and who want the independence of self-employment coupled with the support of the franchisor. A franchise is more likely to succeed than other business start-ups, with 90% of units reporting profitability. Start-up costs have reduced in recent years and are now £50,400 on average. The most recent (2009) annual NatWest/bfa franchise survey revealed that property services remains the largest sector for franchises, with personal services the second largest.

THE SECTOR AT A GLANCE

£11.4 billion
value of the UK franchising industry

838
franchise systems operating in the UK

467,000+
people employed in franchising in the UK

90%
number of franchising units reporting profitability

£326,000
average turnover for a franchised business

Franchising and the Services

Many of the personal qualities required to make a franchise work are also highly prized in the Forces. Self-discipline, self-motivation, initiative and the ability to get on with others are key to a successful franchise, as is that little spark of entrepreneurship.

There are a number of technical franchises available, involving areas like cars, IT and workshop tools, and Service training and experience can often be relevant in such areas. However, ex-Forces people also run successful franchises in activities such as upholstery cleaning, sign-making, legal services and estate agency, so nothing should be dismissed until it has been checked out.

There are, however, some common key skills. Competence in ICT, accounting, law in the retail sector and the ability to drive would all be extremely useful. It is also likely that the potential franchisee will need to take out a bank loan to fund the purchase. While most franchisors will help with the necessary business plan and any other paperwork, it is essential that the individual taking out the loan fully understands the detail of these documents.

The two-way agreement

Franchisors look for sales and marketing experience in their franchisees, as well as the right attitude: self-motivation, willingness to work, and financial awareness. Most franchisees want to be their own boss, while having a franchisor’s back-up. Other benefits of franchising include:

• tried and tested market
• established trade name
• access to an experienced network
• allocated trade area
• training
• market intelligence from the franchisor
• marketing activities undertaken by the franchisor
• bulk buying powers of the franchisor
• finance may be more readily available
• lead time to success may be shorter.

What a franchisee should look for

The prospective franchisee should seek out information on the following:

• initial training
– technical
– administration
– sales and marketing
• help over initial funding
• ongoing training
– periodic regional meetings and conferences
– seminars
– new product training
– refresher training
• product or service
– quality
– quantity
– availability
– development
– sales record in other franchises or businesses
• plans for new products
• franchise territory
– size
– population
– population breakdown
• marketing support
 – advertising campaigns
 – high-quality literature
 – public relations guidance
 – sales guidance
 – sales leads
 – ongoing information.

Points to ponder

Research the opportunities and make a shortlist of franchisors. Meet them and ask to talk to some of their franchisees (preferably other Service leavers). Reputable franchisors will help because they will want their franchisees to be sure they are getting into the right business. In some cases, ask if the franchisors run their own outlet; if it is a profitable business and they don’t, ask them why not.

Do not sign up for anything until you are ready. However, franchisors are in business and want to sell to people who are ready to invest within a few weeks – commercial concerns do not operate the Service posting timescale of six months or so; they are looking for early commitment from the right people, who will find any necessary financial backing easy and quick to obtain.

THE CRUCIAL QUESTIONS

It is critical to answer some questions absolutely honestly in order to make the right choice about whether or not to take on a franchise.

About yourself

• Do you want to be self-employed?
• Do you want to invest your own money?
• What proportion of your assets would you be willing to risk in a franchise? (Calculate the value of your assets, including savings, car, etc.)
• Does your spouse or partner share your enthusiasm?
• Will your family be supportive?
• Is your physical health good? For example, have you had any problem that would prevent you obtaining a life assurance policy?

About your new business

• What sort of business do you want?
• Do you want to get involved in something new?
• Do you want to use your skills and experience?
• Do you want a business to share with someone in your family?
• Do you want a premises-based business or one you run from home?
• Do you want to manage other people or be ‘hands on’?
• How much do you want to spend?
• How much time will you give to a business?

However, although risks will be lower than for any other kind of business – they may even be less than in a lot of employment options – they still exist. Franchising is not for people who are not realistic about what they can afford or how hard they will work. However, people from all walks of life become franchisees for a wide variety of reasons – including the many people looking for a fresh start after a lifetime’s career in the Armed Services.

Franchising deserves serious consideration if you are thinking about starting your own business. There is probably a franchise to suit everyone, no matter what their interests, previous experience, lifestyle or budget. Franchises exist in a huge range of business sectors and investments range from £3,000 to £500,000.

A convenient research tool is one of the array of franchise exhibitions held in the UK each year, where visitors can see for themselves the wide variety of businesses available, attend seminars and talk with independent experts about franchising. There is free professional advice from leading banks, solicitors and franchise consultants. In addition, a number of free seminars are held, providing potential franchisees with sufficient knowledge to make informed, calculated choices about franchising options.

Anyone interested should contact the bfa and examine its literature (see the ‘bfa bookshop’ page of the bfa website), including the book How to Evaluate a Franchise, the Franchisee Guide boxed pack, and the free Introduction to Franchising video or DVD. There are franchise seminars throughout the UK, where experts and franchisees provide advice – the next prospective franchisee seminars take place on 17 February (Manchester), 25 March (Southampton), 29 April (Birmingham) and 26 May (London). There are also exhibitions (with the National Franchise Exhibition being held from 1 to 2 October at Birmingham’s National Exhibition Centre), where franchisors take stands and there are opportunities to seek free expert advice.

Other sources of advice are:

• banks
• solicitors
• franchise consultants
• local Business Links
• and, most importantly, anyone you know who is already operating a franchise.

Beware of:

• offers that sound too good to be true
• a large fee up-front but low royalties
• franchisors that will not let you meet other franchisees
• low-quality training, marketing material or business plans
• pressure to sign anything before you are ready.

KEY CONTACTS

British Franchise Association (bfa), A2 Danebrook Court, Oxford Office Village, Langford Lane, Oxford OX5 1LQ Tel: 01865 379892 Website: www.thebfa.org

whichfranchise.com, 144 West Regent Street, Glasgow G2 2RQ Tel: 0141 204 0050 Website: www.whichfranchise.com

Franchiseinfo (the official website for UK franchise exhibitions): www.franchiseinfo.co.uk

Exhibition ticket hotline: 0844 257 8668