invested at considerable levels, it is crucial for potential franchisees to choose wisely when it comes to finding the right franchise to join.
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A significant aspect of a franchisee’s decision-making must involve the way the franchisor operates their business. It’s commonplace to refer to franchisors that are operating the right way, and are therefore worthy investments for franchisees, as adhering to the principles of ‘ethical franchising’. So what does that actually mean to a prospective franchisee, and how does it inform the behaviour of franchisors?
Ethical franchising fundamentals There are four key elements of an ethical franchise: • The business needs to be proven to work – not just the idea on paper or in someone’s head – with evidence that the product or service is saleable, and at a level of profit that will sustain both franchisees and franchisor
• It needs to be transferable and teachable, which means it can be run in multiple locations by multiple independent operators using the same system, brand and quality standards
• The franchise is structured and operated in accordance with the principles set out in the European Code of Ethics for Franchising, which broadly covers advertising, recruiting and interactions with franchisees. The legally binding franchise agreement, while weighted towards the franchisor to protect the brand and wider network, must be fair to both parties and comply with UK law, European Union law and the European Code of Ethics
• All information on the business that is material to the franchise proposition and contract is disclosed without ambiguity to prospective franchisees,
ith over 900 franchises operating in the UK, the diversity on offer is substantial. With time, emotion and capital
and any financial projections and earnings forecasts shall be objective and realistically achievable
“Good franchisors understand the benefits of having well-informed prospects...”
Ethics in practice
Now that you understand the principles behind a good franchise business – one that is worthy of consideration for your efforts and capital – it’s worth discussing what ethical franchising means in reality. Broadly speaking, these are some of the telltale signs every potential franchisee should look out for in their franchisor.
Open disclosure
Good franchisors understand the benefits of having well-informed prospects. As well as a thorough understanding of daily operations, potential franchisees should ask any questions they have in order to understand the franchise’s ethos, sustainability, fees and proposition. Ask for proof that the business can be profitable for a franchisee and find out what projections are based on, the health and history of the network and the people behind the brand.
Legal considerations It’s perfectly normal for potential franchisees to have to sign a confidentiality or non-disclosure agreement before delving deep into the franchise opportunity on offer; the payment of a deposit is commonplace, too. But you should make sure that it is a refundable deposit, less any realistic tangible costs incurred. Every franchisee should have (and take) the time and opportunity to have their franchise agreement thoroughly reviewed by a bfa- affiliated franchise solicitor – do not skip this step!
Initial training
Franchising is set up in most cases to allow someone to operate a business in a field in which they have no professional background. There should be sufficient training in place before a new franchisee begins trading to successfully launch – it might be on sales and marketing, administering the business, the systems or technical training – but it must be in place.
Ongoing support Training should not end once the franchisee begins trading. Continued support should be on hand to the franchisee at scheduled intervals and on an ad hoc basis as required. It’s what your monthly management service fees (MSF, or royalties) entitle you to, among other things. Find out what your franchisor is committed to providing.
Synergy
A franchise must not be dependent on selling and re-selling franchises to survive; it should be reliant on the long-term success of its franchisees to make its own profit through MSF. In fact, a good franchisor makes very little or no profit off the initial joining fees, which will mostly cover training costs and admin; that way, it’s encouraged to help its franchisees do well. Ask for a breakdown of the start- up costs, which can vary widely; find out where your money is going – a good franchisor will tell you.
bfa membership
Membership is not a guarantee of success – your own hard work is one of the biggest contributors to that – but by joining the bfa, it shows the franchise’s commitment to providing the right environment in which franchisees can prosper; it’s a stamp that says: “We value our business and our franchisees, and their success is our success.” As joining the British Franchise Association is voluntary, not legally mandated, it shows that a franchisor is proud of the ethical standards they uphold. Isn’t that the kind of business you should be joining?
May 2017 |
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