Technically a business franchise exists when a legal person (i.e. an individual or company) provides consideration to a third party franchisor who/which in return offers a business system, intellectual property rights, training based upon an existing formula as expressed within a normally written agreement. In simple terms franchising can be described as aspiring to replicate a successful business format. In most cases, each business outlet is owned and operated by the franchisee and is the franchisee’s very own business. However, the franchisor normally retains control over the way in which the products and/or services are marketed, sold and/or distributed. In certain cases, the franchisor may also seek to retain “rights of pre-emption” should a franchisee wish to sell his/her/its franchise in the future. A right of pre-emption being a right to purchase shares before they can be offered to third parties, i.e. a right of first refusal.
Compared to starting your own business, franchising can provide a safer route into self-employment. Research shows that out of all the businesses started today only 20% will be trading in 5 years time – with franchising the figures are reversed so choosing a franchise could well give you a better change of success . As stated before, as a franchisor you will be buying into a business concept that is already operating and you are in business for yourself but not by yourself. The problems that you are likely to encounter as well as the mistakes that are lurking around the corner have in all likelihood already been met and dealt with by the franchisor and the knowledge acquired passed onto you. The Franchisor will also provide initial training and support the Franchisor through the growing stages. Where franchising can be safer than starting your own business, it still requires a lot of hard work and commitment – it requires more than just choosing a franchise, paying the necessary fees and being successful. The franchisor will provide name, support, guidance and a proven format but he or she will not do the work for you. In the end it will be your hard work and skills that make or break the business and it is vitally important to take enough time to consider not only the viability of your potential franchise brand but also the financial (and time) commitment required by you and whether of not franchise will be enough to fulfil your expectations. Most importantly make sure you talk to other franchisees to hear their views and insist on seeing solid evidence of business with sound proof of at least one successful franchise and no noteworthy record of failures.
The Franchise Agreement is the bedrock of the franchise relationship and potential franchisees are strongly advised to ensure they fully understand the Agreement they are going to sign and the obligations and restrictions contained therein. A specialist Franchise lawyer should be consulted, as he/she will be able to examine the Agreement carefully and advise on matters that require particular attention. In general special attention should be paid to the term (normally seven years), renewal arraignments (should be able to renew at least once without changing the terms and conditions), sales/assignment, the fee structure, territory (practically impossible to get exclusive territory), property (normally remains with the Franchisor after the agreement finishes), restrictions, advertising and termination.
After the legal formalities have been sorted, it is time to take care of the finances. In practise the franchisee pays the franchisor an initial franchise fee and if necessary the costs of shop fitting together with the costs of equipment required to run the business. Once established, the franchisee will normally pay the franchisor a further monthly payment, royalties, based on the turnover. Effectively this is where the franchisor gets paid for the ongoing support, which will keep him/her motivated to do his/her best to ensure the franchisee’s continued success.
Despite the 2003 NatWest/BFA survey findings that 26% of new franchisees were women – a 10% increase from last years survey – women are still under-represented in franchising. It is worth noting that franchising offers openings for women seeking flexible working hours to juggle the responsibilities of home and to add to the family income. Opportunities are available in training & recruitment, building and property services, estate agency and letting services, health & beauty and food & drink. In the United States more than a third of all franchisees are women. The UK franchise industry is aiming to match this figure.
The British Franchise Association works with Everywoman under the European Commission Social Funded CREATE project to promote franchising to groups under-represented in the current franchise market, women being a primary audience. Should you be interested in this option, contact British Franchise Association on 01491 578050 (www.british-franchise.org), Everywoman on 0870 746 1800 (www.everywoman.co.uk) or if you are in Ireland visit www.franchisedirect.ie.