The franchise basics
What is franchising?
A quick and easy guide to the concepts involved T
he term ‘franchising’ is used to describe many diff erent kinds of business relationships, but in its most common use, and the defi nition we are concerned
with, refers to business format franchising. In business format franchising, a company licenses its trademarks and proven business methods to others in exchange for a recurring payment, a percentage of gross sales or a fi xed fee. A company that licenses its trademarks and methods is called a franchisor. An individual who pays to use a franchisor’s trademarks and methods is called a franchisee. Franchisees open clones of the franchisor’s business, and run them with the continual assistance of the franchisor for a pre- determined period. The relationship between a franchisor and a franchisee is governed by a contract called the franchise agreement. This agreement outlines the privileges, terms, conditions, restrictions and other details of the arrangement. The business operated under a franchise agreement is often called a franchise outlet or franchise location. The franchise agreement typically entitles the franchisee to initial training, an operations manual, a start-up package, a delineated area of operation (the ‘territory’), ongoing support, national and/or regional marketing and the trademark licence. The agreement entitles the franchisor to various payments and fees, and asserts their control over the trademark(s), the way in which the products and services are marketed and sold, and the quality and standards of the
business as a whole. Franchising allows previously untrained people to own and operate a tried and proven business, and provides companies with an eff ective and profi table means of expanding. The benefi ts to both parties and to the economy as a whole are signifi cant.
A brief history… The concept of franchising gained traction in the early 20th century. The 1950s saw an increasing interest in franchising and the concept was adopted by companies in ever increasing sectors of the economy. The British Franchise Association (bfa) was formed in the late 1970s to promote high standards in the industry and to educate the public about franchising. bfa accreditation today provides credibility and respectability to deserving and ethical franchise business opportunities and service providers.
The future
Franchising is based upon a long-term business relationship between franchisor and franchisee. The franchisor has the proven business formula, method and model. The franchisee has the drive and wherewithal to use, follow and build a business. Both must collaborate for the franchise business to reach its potential and both have an interest in seeing this succeed. As we progress through the 21st century, an ever growing number of owners of successful businesses will create new franchise opportunities.
There are diff erent kinds of franchises but most fall into one of the following categories:
Hands-on franchise These require an investment level of £7,500 to £20,000 and can best be described as a self-employed, one-person operation, frequently vehicle-based and are in areas like cleaning, motorist services, craft or skill related (see feature on page 22).
Management franchise Investment of between £35,000 to £100,000. Normally controlling and managing a region with a team of operatives.
Retail franchise Investment from £75,000 to £300,000. Acquiring premises, rental and shop fi ttings to the franchisor’s specifi cation, then recruiting and training staff , all following the franchisor’s strict guidelines.
Food & Beverage franchises Investments of £100,000 to £800,000. Varying primarily upon location. Franchisors work with franchisees from site approval through shop fi tting and professional launch.
Investment franchises
Capital of £1million to £5million. The franchisee retains overall strategic management while hiring others to run the franchise outlet on a day-to-day basis. Most investment franchises relate to hotels and multi-unit restaurant franchises.
September 2018 |
BusinessFranchise.com | 15
Source: Ashtons Franchise Consulting
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