How franchising works: the two sides of the stor y

By Cathr yn Hayes,

Franchise

When the word ‘franchise’ is mentioned, many people in the UK think of a series of blockbuster films or railway operations But, my two part article looks at the world of businessformat franchising, from the perspective of both sides – the franchisor and the franchisee

According to the British Franchise Association (BFA), business-format franchising, is the granting of a licence by one person (the franchisor) to another (the franchisee), which entitles the franchisee to trade under the trademark/trade name of the franchisor and make use of an entire business package, comprising all the elements necessary to establish a previously untrained person in the business and run it with continual assistance on a predetermined basis.

A strong and successful business-format franchise should provide:

● An established market for the franchisor ’s products or services.

● Proven sales, marketing, and operational procedures

● The benefit of an established business name

● Training, ongoing support and help in running the business

● Where appropriate, help in finding, fitting out and furnishing premises

To be successful, both parties need to benefit from each other In part one, I am going to look at:

Franchising from the franchisor’s perspective

Franchising has grown considerably in the UK over the last thirty years and is now established in many business sectors, especially the fast-food and service industries

It can be a great way for a business to

Director, Revive! Auto

expand across the UK and beyond, without the potentially huge capital investment needed to grow a whollyowned operation

As a franchisor, you will award a licence (franchise) to local operators to sell your products or services, trade using your brand, using your trademarks and logos for a specific period.

The franchisee will have a personal stake in the business and own their business so you can expect them to be more motivated to grow and make it a success than employed managers However, you specify exactly how your franchisee must operate, they need to comply with your rules in terms of how the business operates

There will be costs involved at the outset to develop your franchise operation, but franchisees will pay you an initial fee that will, over time, help to reimburse these costs. When franchisees have launched and are trading, you will receive a regular income from them by charging a management service fee or marking-up the price of goods you may supply

At first glance, it may seem too good to be true, but as well as benefits, franchising can have its drawbacks which we will explore The development of a successful franchise network requires careful planning, ongoing

About the author

Innovations

monitoring, plus advice and support from professionals, such as a franchise consultant, accountant, franchise lawyer and specialist banking teams

It is important that a business planning to franchise has demonstrated that it is viable and profitable and has sufficient capital to expand, as even when franchising is done properly by a successful business, it could take some years to achieve a positive cash-flow and worthwhile profits

This article offers a brief overview of the aspects a business needs to consider when expanding through franchising

What is franchising?

Franchising is a “joint venture” between an independent person (the franchisee) and a business (the franchisor) which wishes to expand its activities.

The venture is governed by a legal contract This gives the franchisee the right to operate using the franchisor ’s trade name/trademark, in accordance with a business-format or “blueprint”

All aspects of the franchisee’s business are strictly controlled including image,

It is important that a business planning to franchise has demonstrated that it is viable and profitable and has sufficient capital to expand

Cathr yn Hayes is the Franchise Director at Revive! Auto Innovations and has over 25 years of franchising experience

Previously Head of Franchising at HSBC, followed by a shor t-term senior role at the British Franchise Association, Hayes has a high profile within the sector, contributing regular ar ticles to the franchise press and other business media cathryn hayes@revive-uk com www.revivefranchise.com