 Some big names are franchises |
If you want to run your own business, but don't feel brave enough to start a company from scratch, you might want to think about buying into a franchise.
A franchise is basically an established business model that you can adopt, at a cost of course.
Normally it is based on a tried and tested formula and is part of an established brand, which gives you the advantages of instant recognition and goodwill.
McDonald's is the best known example.
But there are thousands of smaller franchises such as cleaning companies, pizza delivery outfits and printers.
What do I get?
Generally, you buy a franchise and then pay a regular fee to the franchisor.
In return you get an established, and presumably successful, business format and support and advice on how to run it.
There are both advantages and disadvantages to buying a franchise.
On the up side:
You are usually buying a proven business successYou may be able to exploit a recognised brand nameYou won't be alone - the franchisor should provide you with support. This should include employment guidelines, legal advice, accounting systems and ordering systems etc.Financially, it may be easier to convince a bank to lend to you for a franchise than for an untried idea.On the down side:
You will have to run the business the way the franchisor wants you to. If you are a natural entrepreneur you may find yourself overly constricted.If the franchisor goes out of business or sells the chain to someone else, your business may be at risk.You will probably have to pay a regular fee to the franchisor. This may be a percentage of your profits, so the more successful you are, the more you'll pay out to your parent company.
Getting started
Franchises can cost anything from a few thousand pounds for a mobile cleaning business to hundreds of thousands of pounds for a fast food franchise.
Before you buy a franchise do your homework, write a business plan and carry out your own market research on your potential customers.
Speak to your bank. They will probably have a person who specialises in advising would-be franchisees.
You should look into the background of the franchisor.
Find out how long the business been running, and how many franchises it has.
Also check how successful its franchisees have been - have many failed?
You should also check into the support and training that you will receive. And look closely at the financial projections for your franchise.
Make sure you are aware of the terms of your agreement, specifically how long you will have the franchise for, whether you'll have an option to renew it and what happens if you need to sell the business.
Never sign up without getting the agreement vetted by a lawyer.
Make sure you speak to other franchisees - those suggested by the company, and others that you find by yourself. Ideally try to speak to a franchisee whose business failed.
Other types of franchise
There are several different types of franchise.
As well as complete packages, there are franchises like car dealerships where you might have a contract to sell a product without trading under the franchise name.
There are also franchises where self-employed distributors sell goods on behalf of manufacturers. They make commission on the number of items they sell, and employ other distributors to work for them.
People to speak to
The British Franchise Association publishes an information pack and a full list of its members.
If your franchisor isn't a member, find out why not.
The BFA can also advise you on franchise exhibitions, which are a good place to see a variety of franchises.
For more information give them a call on 01491 578049 or take a look at their website www.british-franchise.org.uk.
Also look on the Business Link website at www.businesslink.gov.uk for more general information on starting a business.
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