What is franchising?

According to the British Franchise Association (bfa), franchising (or business format franchising, to be precise) 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’.

To put it simply: some companies choose to grow, not by developing in the conventional way, but by granting a licence to others to sell their product or service. So, one person copies another’s proven business and 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.

Why choose franchising?

Franchising can provide the perfect route for those who are keen to set up their own business, who have some money to invest, and who want the independence of self-employment coupled with the support of the franchisor. Choosing a reputable franchise will enable budding and enterprising people to follow a tried-and-tested formula with the backing and support of a well-established brand, which can, potentially, lead to dramatically higher levels of success. A franchise is more likely to succeed than other business start-ups, with the most recent (2010) edition of the annual NatWest/bfa Franchise Survey revealing that 89% of franchises reported profitability. 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.

It may also be a good idea to work for a franchise first, to gain some experience of what is involved. As Tom Endean, bfa marketing manager, explains, ‘A franchise relies on having people with the right attitude and skills owning and running the individual business, but finding these people can sometimes be difficult. However, one area from which we do see a number of successful franchise businesses sourcing new franchisees is among the employees of the network – whether it’s a burger restaurant, retail outlet or business service provider.’ This means that ‘any employment with a franchise could be a huge opportunity in waiting. Looking to work for a business that is a franchise could offer the opportunity to learn the business and raise the funds to possibly own your own operation in the near future. We have seen many successful examples of this and I urge people to have this in mind when job hunting: what may seem like a simple job to tide you over could end up as a doorway to owning your own business.’

The bfa

The British Franchise Association (bfa) is concerned with developing and controlling good and ethical franchising among its member franchisors. It describes its role as to help ‘potential franchisees recognise the good, the bad, and the ugly for what they are’ and those ‘businesses involved in franchising to secure their own position among the “good” operators’. Last year, it launched its Qualified Franchise Professional (QFP) qualification, which is designed to provide formal recognition of an individual’s professional knowledge and experience in franchising, and offers a range of membership grades, full details of which can be found on the bfa website (see ‘Key contacts’).

Franchising skills gained 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, willingness to work 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, financial awareness 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.

Decided on a franchise?
What next?

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.

What you should look for

The prospective franchisee should seek information on the following:

• initial training (e.g. technical, admin, sales and marketing)
• help with initial funding
• ongoing training
• the product or service (e.g. availability, sales record in other franchises or businesses)
• plans for new products/services
• franchise territory (size etc.)
• marketing support.

Start-up costs have reduced in recent years and are now £46,700 on average. They are usually covered by the franchisee’s initial investment and a loan, often from a high-street bank, which will generally advance money to fund franchisees of an established, ethical business. Under normal conditions, banks will often lend 70% of the start-up costs, as opposed to 50% for an independent operation.
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.

Still not sure?

Franchising deserves serious consideration if you are thinking about starting your own business. Franchises exist in a huge range of business sectors – there is probably a franchise to suit everyone, no matter what their interests, previous experience, lifestyle or budget.

A convenient research tool is one of the array of franchise exhibitions held in the UK each year, where you can see for yourself 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.

To find out more, contact the bfa (see ‘Key contacts’) and examine its literature (visit the ‘bfa bookshop’ page of the its 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 14 September (Guildford) and 25 October June (Birmingham). There are also exhibitions, where franchisors take stands and there are opportunities to seek free expert advice. These include the National Franchise Exhibition, at the NEC in Birmingham, from 1 October; for a full list of UK franchising events, visit www.thebfa.org/diary.asp). Other sources of advice include banks, solicitors, franchise consultants, local Business Links and, most importantly, anyone you know who is already operating a franchise.

A final few words of caution …
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.