What is a franchise business?
Are you considering self-employment, possibly for the first time & interested to find out more about franchising? Firstly you need to find out exactly what a franchise is & how it differs from other businesses. So what is a franchise business?
A franchise business is a very niche business operation. Franchising is basically replicating an already successful business operation. This is achieved usually with the help of franchise consultants & consists of the following process;
- Franchise business modelling & documentation – Much franchising documentation is needed including franchise agreements, franchise operations manuals & training manuals
- Training – This usually consists of initial induction training & usually involves ongoing training for both the franchise investor ( Franchisee ) & any staff they may employ
- Business support – Once the Franchisee has completed the above the franchise business or Franchisor will usually provide ongoing business support. This support will include telephone, email & also often involves ongoing face to face support either at the Franchisors or Franchisee’s premises.
Why franchise a business?
Now you understand what is a franchise business the why would a business decide to franchise? Many entrepreneurs that have a successful business that they want to grow consider franchising but why? Here are a few of the main reasons;
- Partners rather than employee’s – When you grow through franchising you do so by recruiting Franchisee’s, not employee’s. This lowers overhead costs, eliminates other administration & risk plus also as the Franchisee has made an investment gives the Franchisor some comfort that they are committed to making a success of the business.
- Opportunity to grow rapidly – When franchising the only restriction to the speed of growth is the Franchisor’s ability to find suitable Franchisee’s. Therefore it gives the opportunity for the business to grow much faster than an organically grown business. This could also be particularly useful if say the business operated in a new or currently unexploited sector & wanted to gain market share fast.
- Raising capital – Franchising a business can also be a great way for a business to raise capital for expansion. By franchising the business the Franchisee’s will raise the finance required to expand in the chosen geographic area. Provided the Franchisor can recruit in the desired areas with franchise partners that can raise the required finance it can have an almost unlimited credit line.
Should I invest in a franchise business?
Now you understand what is a franchise business & how it works is it right for you? Franchise businesses generally have a far higher rate of success than other business start-ups, why? Well a franchise is copying an already successful business but also you will get full training & support from the business owner or Franchisor. That said is franchising going to be the right choice for you?
When you invest in a franchise & become a Franchisee you are agreeing to follow a system. The business owner would have documented exactly how you need to run the business & will expect you to follow this system. Following a system is not for everyone so you need to consider if you would be happy to do this, not just initially but for 5+ years, the usual length of a franchise agreement.
What is the process of buying a franchise business?
Once you are convinced that franchising is the right option for you then you also need to carrying out thorough research & due diligence before making any franchise investment. Here are a few tips to buying a franchise;
- Make a short list – Franchising is a great way to change career direction but be honest with yourself when compiling a list of franchises for your short list. Consider your background & skills but more importantly is the industry sector of interest & could hold your interest for 5+ years?
- Attend a franchise Discovery Day – Basically this is a face to face meeting with the business owner or Franchisor. Make a list of questions before you attend. For example find out about the Directors & business backgrounds, number of Franchisee’s & any other queries you have regarding the franchise. Never sign anything or make a decision on the day.
- Speak to existing Franchisee’s – If they have existing Franchisee’s ask to speak to a couple to find out if they are happy with the support & if the earnings potential matches the marketing materials you have already received from the Franchisor.
- Take professional advice – If you have carried out the above & are very interested to proceed you need to carry out thorough due diligence on the franchise business. This will include reviewing the Franchisor & possibly Franchisee’s accounts & a thorough review of the franchise agreement. You will need professional advice for this, do not try to save a few hundreds pounds & then sign a franchise agreement without it being reviewed by a franchise lawyer! Franchise agreements are usually a minimum 5 year term, many marriages do not last that long so make sure you understand exactly what you are signing.