About Franchising

Perhaps you want to own your own business because you want to be your own boss. Should you start a business from scratch? Should you buy an existing business from owners who are seeking to sell so they can retire? Or, should you buy a franchise?

The term 'franchising' has been used to describe many different forms of business relationships, including licensing, distributor and agency arrangements. The more popular use of the term has arisen from the development of what is called 'business format franchising.'

In the UK this type of 'business format franchising' is headed by The British Franchise Association, they describe it as the granting of a license by one person (the franchisor) to another (the franchisee), which entitles the franchisee to trade under the trade mark/trade name of the franchisor and to make use of an entire package, comprising all the elements necessary to establish a previously untrained person in the business and to run it with continual assistance on a predetermined basis.

The principle is simple - some companies choose to grow, not by developing in the conventional way, but by granting a license to others to sell their product or service.

There are clear advantages to this:

• You don't have to come up with a new idea - someone else has had it and tested it, too!
• Larger, well-established franchise operations will often have national advertising campaigns and a solid trading name
• Good franchisors will offer comprehensive training programmes in sales and indeed all business skills.
• Good franchisors can also help secure funding for your investment as well as e.g. discounted bulk-buy supplies for outlets when you are in operation

If aware that you are running a franchise, customers will also understand that you will be offering the best possible value for money and service - although you run your 'own show', you are part of a much larger organisation.

How franchises work
The person who grants the licence is called a franchisor. The person who gets the licence to run a business is called the franchisee. The agreement means that the franchisee gets all the elements of the successful franchised business necessary to succeed – this includes everything from branding, products, supplies, designs and even marketing and advertising support.
 
The support runs for the length of the franchise agreement and this period is usually set out at the beginning.

The franchisee agrees to pay the franchisor for this privilege. Usually, but not always, this amounts to an upfront payment plus staged payments so that they are paying as the business develops. Some franchise agreements stipulate that the franchisee must pay more if the business gets more successful, but sometimes it’s just a regular flat fee.

The advantage that you have in franchising is that you are leveraging the brand of a bigger organisation and benefiting from the input that they can give you – in the form of design, advertising, marketing, sales advice and training.
Many companies that operate as franchises belong to the British Franchise Association. This is an accreditation body that makes sure potential franchisors (the companies) follow a set of guidelines.
If a company is not a BFA member, it does not mean they are disreputable, but they won't have followed the association's guidelines and you may need to take professional advice to ensure that you don't trip up.

Useful links
British Franchise Association