Franchise Advice T
hose of us who have been involved in franchising for a few decades have seen the sector weather a number of economic storms. Back when franchising in the UK was in its infancy, recession and redundancy supplied the industry with newcomers wishing to work for themselves.
“A franchisee has invaluable advice and help from their franchisor, who has the expertise and resources to make a difference”
At that time, the major concern was that the recession would have a very serious adverse aff ect on small businesses and, with it, on franchising. We were proved wrong, or at least so far as franchising was concerned. Also at that time, franchisors were worried that they would not be able to sell franchises and that their businesses would collapse. In fact, the opposite turned out to be true. Large-scale layoff s meant people without a job were disillusioned with the relative insecurity of employment, and with hefty redundancy payments burning a hole in their pockets, some chose to try their hand at being their own boss and starting their own business. What better way to do so than to buy a tried-and- tested business system?
As a consequence, franchising
fl ourished. Admittedly, redundancy payments are considerably smaller now and bank fi nance is harder to come by. On the other hand, interest rates are lower and most franchisors are more supportive and more willing to accommodate the right franchisee when it comes to the payment of initial franchise fees.
If truth be known, franchising not only survived – it prospered. There were a number of reasons for this, and the lessons learned in the last few decades have stood us in good stead. The main reason for franchised units performing better than managed ones is that the owner themselves is behind the counter. This holds particularly true when times are hard. Owners work harder, make do with less and make greater eff orts to keep their business going, than do employed managers. This is easier said than done when the uphill struggle is a lonely one, particularly for independent retailers – but not so for franchisees, because there is another reason that is equally important when trading conditions are diffi cult, which favours franchisees over independent traders. One of the major strengths of franchising is that franchisees have someone to talk to and confi de in. An independent retailer is truly lonely
in their predicament. They will seldom talk to a competitor and compare notes, and although they will take some comfort in discussing problems of a general nature – high cost of borrowing, for instance – they will not be able to discuss freely any issues they are facing. A franchisee, however, is able to discuss
any problems with other franchisees within the network, many of whom will have also experienced the same issues. Furthermore, a franchisee has the invaluable advice and help from their franchisor, who may also be their supplier and has the expertise and resources to make a diff erence. In my experience, franchisees have
shared advertising, swapped stock (to keep down the cost of holding stock) and so on among themselves, something that competing independent traders dare not do.
Franchisees have the power of the brand to sustain them through diffi cult times and, by pooling advertising money, are able to achieve a greater impact in the market than an independent retailer’s budget. Franchisees are also able to negotiate more favourable trading terms from their suppliers via their franchisor. The sum total of all these things – some small, many signifi cant – helps franchised business to ride out an economic storm. Small wonder then that the success and survival rate of franchised businesses, whatever the trading conditions, is signifi cantly higher than that of independent small businesses.
Manzoor Ishani
Manzoor Ishani is a senior consultant solicitor with Sherrards (Solicitors), a commercial practice advising franchisors and franchisees in the UK and internationally. He has specialised in franchising for more than 40 years and is a former member of the legal committee of the British Franchise Association. He has also co-authored several books on franchising.
www.sherrards.com mgi@sherrards.com
February 2017 |
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