Buying a franchise could be a great way of getting your very own business, and you would not be alone either, believe it or not, franchising has been widely accepted for around 50 years now, it is neither a new concept, or a sector in decline, quite the opposite it seems, it is probably that it has not been on your radar until now. Let’s see if that might be about to change for you!
You Can Operate A Brand Name At A Local Level
You have almost certainly encountered franchised business locally without realising it, often being served by people you know in the local community and that’s just it, franchising is not just reserved for some of the big names that you will already be aware of, you could just as easily be the franchisee that is representing that very brand locally! This might seem like a pipedream as you are reading this article, but it is a fact that this is how franchising is done, often with a brand name, operated at a local level. In fact, those very brands need you, just as much as you need them, they cannot operate the business centrally without you as their franchisee!
Some Franchising Terminology To Help You
Franchising is easily simplified by being aware of some of the wording commonly used, like anything, it’s easy when you know them, you just need to become more familiar, so let us set the record straight, starting with the basics:
- Franchisee– this would be you, taking on one of the franchises you are looking into, often split into the following:
- Single unit owner operator franchisee- this would be you running say, a single coffee shop
- Multi unit owner operator franchisee- still you but running a few sites simultaneously (definitely with a team to support you!)
- Area developer franchisee– you could decide that you want more than a few stores, so would be granted the rights to operate an entire city or region
- Master franchisee– if the brand is UK based, often they themselves would be the master franchisee, mostly used if this is a non UK based brand, looking for someone to take the rights on to an entire country
- Investor franchisee– some (but rarely) franchises are hands-off and operated from a head-office function for a simple return on investment
- Franchisor– the brand owner of the franchise you are probably looking at
- Franchise– a generic term to explain the business format you are exploring
- Franchised business– franchised rather than company owned operation
There are many more of course, this is not an exhaustive list!
What Fees Should I Expect When Buying A Franchise?
There will be reference to at least two types of franchise fees when you are looking into this aspect, ‘Initial Fee’ and ‘Ongoing Fee’
Initial fee will reimburse the franchisor for the cost that it takes them to onboard you, and there are many factors that influence what level of this fee this could be, this then needs a longer explanation that this short article cannot cover! This fee is often payable ahead of your initial training.
Ongoing fees will deal with other fees due, such as royalty payments (for the benefit of trading as a franchised business) there might be other levies as you benefit from some central activities, all which will be explained before you fully commit to the franchise of your choice.
How Long Can I Run My Franchise For?
Contrary to popular belief, this can be for almost any timeframe that you can both agree on, although there are areas that need to be looked at so that the Franchisor can show enough time will lapse to give you a return on investment (ROI) It is very common to have most low cost franchises offered with a 5 year renewable agreement, whilst other, higher value franchises (that required bricks and mortar, or shops!) would be required for a ten year renewable period as the margins can be more reliable but lower percentages hence the differences in the initial term.
Good news for you as well, the franchise rarely stops the end of that set period, you get given rights to continue in what is referenced as a ‘renewed term’ with often very little downside to do so as the franchisor will want an established business to continue in situ.
The ‘Rules’ In Franchising
It is often misunderstood, however and probably surprising to you as you read this article that franchising is unregulated in the UK, which is rare compared to many other parts of the developed world where franchising is highly regulated, again, this is a topic for another day, but this can be just as good for you as a franchisee and it is not so good on some aspects, get clued up on this point with the assistance from people who understand franchising and they will educate you better than a short report can do!
Practical Advice If You Are Thinking About Buying A Franchise
This might go without needing to write about it, but when you commit to a franchise, you must run the franchise ‘as per the agreement, and for the term agreed’ whilst there are options to exit your franchise, should the eventuality arise, it is fair to say that you will be making a long term commitment that should not be taken lightly, failure to do so will have some financial impact on you, so be sure that this truly is a space that you want to be part of for the longer term.
And The Best News For You Is…
There are widely regarded specialists and franchising consultants that can help you with every aspect of franchising, from assistance with finding the best franchise options for you, to funding assistance, helping you to understand the franchise business, and in turn helping you through the franchise agreement! You might be surprised to read that this service often comes to you at no cost to you as the help will come from specific franchise individuals mandated by the franchisor to ensure that everyone feels it is the right fit, at least that is how franchising should be done!
I hope you have enjoyed this short article as much as I have enjoyed writing it, I am a big believer in the quote, ‘you don’t know what you don’t know’ and this is true in franchising!
I hope to see you join the world of franchising very soon!
Richard Pakey is a franchising expert and Regional Director for the award-winning Lime Licensing Group and can be contacted in the following ways: