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Franchising opportunities explored

Buying into a franchise is more than just acquiring a license to sell someone else’s stuff. Greetings Today asked the business experts at Thomas Eggar to explain more about it. Retail Associate, Shaw Stapely gave us his view.

How do franchises operate? A franchise is the reproduction of a proven business model. Once a business has opened a pilot outlet and shown it to be successful, it can then offer the model for prospective franchisees to run their own outlets. The franchisees will pay the franchisor a start up fee in return for assistance with fi tting out an outlet, undertaking training in the business model and training staff, and will then pay the franchisor commission on sales made. In return, the franchisee will have the comfort of a proven business model with an established brand, and the support of the franchisor.

How big is the franchising opportunity for gifts and greeting card retailers in the UK? Franchising has seen an increase in recent times and is proving to be more sustainable than independent outlets, particularly in the retail arena. The benefi t of a network and commercial experience helps the franchisees, and the franchisors also benefi t from the capital injection and willingness to succeed of franchisees. The recent announcement by Thorntons that it would changing many of its company owned stores to franchisee outlets is evidence of the merits of the franchise format.

What are the advantages of owning a franchise?

A franchisee will benefi t from its franchisor’s proven business model and ongoing advice and support. This makes it much easier to set up and become quickly profi table, as opposed to a cold start up.

What advice should a person take when thinking of buying a franchise? In addition to doing thorough fi nancial due diligence into the franchise being offered and determining that the return on investment is suffi cient, it is also important to have the


franchise agreement reviewed by a specialist lawyer. The agreement will set out the rights, obligations and restrictions on the parties and it is important that both the franchisor and franchisees understand and appreciate these. If they don’t, there is a high potential for disputes and litigation, which is not only expensive and time consuming but can also damage the business of the franchise as a whole.

What previous work experience do you need to become a franchisee? This will be down the franchisor, who will vet prospective franchisees and determine whether they are suitable. Evidence of running a successful business or having relevant commercial experience will of course be helpful.

In the current climate, are banks open to lending to business people who want to buy into a franchise? Yes. Most banks favour franchises as they can take comfort in the proven business case of the model, which are often seen as more commercially viable and likely to succeed than independent businesses. The level of personal investment as against bank funding will vary widely and need to be negotiated.

What are the risks - and is there a get-out clause?

A franchised business needs to be profi table enough to make money for both the franchisee and the franchisor. Franchise agreements are usually granted for a term of 5 to 10 years, so franchisees need to be aware of their rights of termination or transfer, and of renewal of the agreement. A lot of the restrictions and protections will favour the franchisor, who will want to ensure that its brand and reputation are protected.

What are the opportunities for potential franchisees buying a franchise? People looking to start up a business would be

well advised to consider franchising. The existing proven model and brand together with the support and advice from the franchisor will make it easier to run the business and make a quicker profi t. The downside is that the commission payable to the franchisor will mean less profi ts for the franchisee, and this will need to be balanced against the perceived prospects of your own business when calculating fi nancial projections.

In a depressed economy, is now a good time to think about franchising? Defi nitely. It is a good time to consider franchising as the model presents a safer route to business success. Everyone will have heard the statistics about the failure rate of new ventures, and this economic climate has impacted these statistics. As mentioned above, the established brand and reputation and support and advice will be of huge assistance to a fl edgling franchise business.

To fi nd out more about franchising as a possible alternative business model, contact: E: T: 01293 742 700 commercial-advice/franchising

Franchising is a tried and tested way of working for yourself, but not by yourself. The Franchise Show is a free exhibition where you can speak to hundreds of exhibitors, rub shoulders with industry experts and attend seminars designed for potential franchisees, those looking to franchise their business, as well as franchisors. With 65 speakers giving seminars, the event should teach you all you need to know about the franchise industry, under one roof on 24/25 Feb 2012, ExCel London.

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