Franchising

Franchising (or business format franchising, to be accurate) is ‘the permission given by one person, the franchisor, to another person, the franchisee, to use the franchisor’s trade name, trade marks and business system, in return for an initial payment and further regular payments’. In other words, one person copies another’s proven business and also receives support in exchange for an up-front payment (the franchise fee) and ongoing fees (proportion of turnover or mark-ups 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.

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 who are expected to be:

- viable – showing a sound business through financial records

- franchisable – having at least one franchised outlet and no significant record of failures

- ethical – franchise agreement and structure conforming to the European Code

- disclosed – documented performance, including financial records available.

Franchising in the UK generates an annual sales turnover of nearly £10 billion and has 671 franchised units. In people terms, it is the same size as the Armed Forces and MoD Civil Service put together. It 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. Franchising is more likely to succeed than other business start-ups, with 95 per cent of units reporting profits after five years’ trading. Franchised business has recently grown faster than other sectors.

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, and people often have that little spark of entrepreneurship.

There are also a number of technical franchises, involving areas like cars, IT and workshop tools, and Service training and experience can often be very relevant in these areas. However, others successfully run franchises in such activities as upholstery cleaning, sign-making, legal services and estate agency, so nothing should be discarded 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.

Next steps

The two-way agreement

Franchisors look for sales and marketing experience in their franchisees, and 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 look for 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.

It is critical to answer some questions absolutely honestly 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?

- Does your spouse or partner share your enthusiasm?

- Will your family be supportive?

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?

Anyone interested should contact the BFA and examine its literature, including The BFA Franchisee’s Guide and Your Introduction to Franchising (a free video). There are also franchise exhibitions (the next one is at the NEC, Birmingham, 12–13September) where franchisors take stands and there are opportunities for free expert advice.

Other sources of advice are:

- banks

- solicitors

- franchise consultants

- local Business Links

- and, most importantly, anyone you know who is operating a franchise.

Set-up costs 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. Banks will usually lend 70 per cent of franchise start-up costs, as opposed to 50 per cent for an independent operation.

However, although risks will be lower than in any other kind of business – they may even be less than 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. Many are 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 franchise exhibitions held in the UK each year, where visitors can see 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.

Beware of:

- offers that sound too good to be true … they probably are

- franchisors that want a large fee up-front but low royalties

- franchisors that are reluctant to let you meet other franchisees

- low-quality training, marketing material or business plans

- pressure being exerted to sign anything before you are ready.

The British Franchise Association, Thames View, Newtown Road, Henley-on-Thames, Oxon RG9 1HG Tel: 01491 578050 Fax: 01491 573517 Website: www.british-franchise.org.uk

Case history: franchising

Been there, done that!

Paul Voltzenlogel

Wing Commander Paul Voltzenlogel left the RAF after 25 years’ service and now owns the MBE business services centre in Andover, employing two former Service colleagues, ex-Army Major Gary Petty and Maggie Turner, a former Squadron Leader. He was the most successful newcomer to MBE’s 72-strong UK network of postal, communication and business services.

Before leaving the RAF he considered his options, being very keen to use his planning and administrative experience to work for himself but recognising that he was accustomed to the support structure of the Services. Franchising offered the advantages of self-employment but with training, support and advice. ‘I wanted a business that would provide variety, a clean working environment, a reasonable living for my family and a good return on the initial investment. I also wanted more flexibility in my working life,’ he explains.

MBE Managing Director, Chris Gillam, says, ‘Paul has been selected as our most outstanding new franchisee in recognition of his centre’s excellent sales results, overall performance and general contribution.’

Voltzenlogel only opened his centre a year ago and is already buying a second outlet. He ‘expected that the business would start modestly and grow steadily but our rate of growth has been much faster than predicted’.