• 08 June 2023 | UK

    Franchising

Franchising

Franchising provides individuals with opportunities to have a fulfilling career in areas they are passionate about, in a way which suits their lifestyle.
Before we go into more detail, first, the terminology.


Franchisor is someone who has a proven and established business model and owns the brand and its intellectual property rights. KFC, Pizza Hut, McDonald’s, Burger King, Costa, Starbucks, Domino’s, Pappa John’s, SUBWAY are all examples of brands owned by franchisors.


Franchisee, on the other hand, is someone who operates a franchised business under a licence. A franchisee is allowed to use the brand name, for example McDonald’s, Burger King, Costa, and financially benefit from strong brand awareness and value.
 

Business format franchising (adapted from the British Franchise Association (BFA)):

The granting of a license by a franchisor to a franchisee, which entitles the franchisee to trade under the trademark/trade name of the franchisor and to make use of an entire package, comprising of all the tools and elements necessary to establish a previously untrained person in the business and to run it with continual assistance on a predetermined basis.
Both parties sign a franchise agreement, a legally binding contract which outlines the obligations and responsibilities of both parties. The franchisee pays an initial fee at the outset followed by an ongoing monthly royalty and marketing fee (typically a fixed amount or a percentage of turnover). For example, many franchisors charge royalty fee of between 6-8% and marketing fee of between 2-4% of turnover. In return, the franchisor provides the know-how, training and support to the franchisee to help them start and run their business successfully. It is in the franchisor’s interest to ensure their franchisees succeed in their venture. If the franchisees grow, so does the brand, and ultimately the franchisor.
The fundamental elements of a business format franchise are piloting to prove the idea works and can be replicated; initial training to franchisees in the operation of the business; the ownership of the business by the franchisee and the capital investment they will have to make.


Fig. 1 - The lifecycle of a Business Format Franchise, showing the franchisee and franchisor commitments throughout the contract (Image from the British Franchise Association)
 

Watch this helpful video produced by the BFA to find out how franchise brands are excelling, using the franchising model, and examples of successful franchisees.
Embeded videos:
An Introduction to Business Format Franchising

We Love Franchising - Franchisee Insights

We Love Franchising - Franchisor Insights
 

Why franchise?

Below are just a few reasons why the franchising industry is attractive and unique:
 

Self-employment

You are never alone – you have support from the franchisor head office team who are always on hand to assist you and help you reach your full potential.

An established business model which has a proven track record

Lower failure rate than going into a business as an individual. You have the expertise of franchisors, and their support.

Opportunities for all – how you work is entirely up to you, whether that be full-time or part-time, in a sector you have experience in or are passionate about.

Varied work – there are many sectors to choose from: fast-food chains, education coaching, hospitality, retail. There is something for everyone.

Invest in your future – setting up future generations by either handing over the business to them or selling the business.

If any of these motivations resonate with you or align with your values, then consider franchising!


Is franchising for you?

Franchisees: Franchisors:
Franchising has many benefits (as mentioned above), but these come with responsibilities for the franchisee.
Whilst a franchisee can be owner-manager, director/shareholder or an investor, they must still be committed, motivated and constantly strive for excellence.
It is important to acknowledge that buying a franchise does not mean that you are buying a job. It must work for you and produce a profitable return to repay capital and time invested in the brand.		 For those with an established business, the next question may be whether to franchise or not.

Franchising provides you with the opportunity to expand and grow your business further.

It is crucial for a franchisor to understand their obligations and responsibilities towards a franchisee, as well as to assess whether their business model is appropriate for business format franchising (as shown in figure 1.)

 

 

 

 

 

 

 

 

 

Key considerations:
 

Franchisee Franchisor

Are they a BFA Member?
How are franchisees supported? What support is available to franchisees?
Does the franchisor provide training?
Do they work with you to achieve your goals?


How do existing franchisees feel?
Speaking to current franchisees who have experience working with the franchisor is a great way to gain insight into the potential collaboration.


Is it a good financial fit for you?
Is the initial franchise fee and working capital affordable for you?


Carry out a very detailed due diligence on the brand you are
contemplating partnering with.


Is the location and territory granted by the franchisor suitable and viable?


Do the profits and timelines work for you?
Prepare financial modelling, break-even analysis, cash flow forecasts
and projected profit and loss account to ascertain whether the brand
can generate required financial returns.


Is the franchisor’s business aligned with your interests?
Are you passionate about the business and industry?

Can Your Business Model Be Franchised?
Is your business successful and can it be replicated by franchisees?
Consider logistics such as training and systems.

Costs
Although expansion through franchising can be cheaper than
organic business growth, there are still cost implications to
carefully consider. there are up-front costs such as writing a
franchise agreement, producing a detailed operations manual,
adapting the structure of the business, marketing, franchisee
recruitment and professional guidance.

Commitment to mentoring and development
As mentioned before, one reason why many individuals choose
franchising is for the support offered by the franchisor (lower failure
rate in franchising than individual business). Consequently, it is vital
that a franchisor is able to provide that support for their franchisees
in their business.

Future Proofing
Many go into franchising to invest in their future, setting up
future generations. Therefore, it is crucial to have a solid foundation for the business, so that you are set up to succeed.

 

Next steps:

Get involved – attend the British & International Franchise Exhibition taking place in London. This event is designed for new franchisees and existing franchisees looking to expand their portfolio.

 

Explore the lucrative world of franchising at the only Franchise Exhibition in London supported by the British Franchise Association via link.

Get in touch with a member of the Aga Khan Economic Planning Board – we are able to provide guidance and confidential advice on any business enquiry. Contact details of our Business Support and Business Mentoring Programme (BMP) committee members can be found in the directory of institutions.


Disclaimer: The videos shared are for information and educational purposes. AKEPB do not promote or recommend any franchise brand, franchise coaches, consultants or agents.