A franchise is a business type where the brand and business model is used in other locations and typically owned by different individuals. This is not to be confused with a chain business, where all the locations are owned and managed by one parent company.
How Does Franchise Business Work?
It works simply – the franchisor sells the rights to the business model, and the franchisee who holds them can then open their own business, and replicate the success, taking the guesswork out of the uncertainty establishing a start-up business and all the related processes.
For example, UK-based Stoneacre Motor Group specialising in the financing of both new & used cars is a franchise dealership group that has the rights to sell brand-new vehicles from major automotive makers who are franchisors.
What Are the Pros and Cons of Owning a Franchise?
If you’re thinking about starting a franchise business, we’ll cover a few essential factors you should consider before making a big step to owning a franchise. Let’s start on a positive note:
- You won’t need to come up with colour schemes, fonts and logos, as franchisors already have established branding.
- Marketing which can be one of the more difficult aspects of a business is also typically taken care of, with some companies rolling out campaigns for all the franchises.
- The business model is there already, so you have less to worry about and focus on making your franchise as successful as the original.
- On-going support from the franchisor will give you access to training, assistance and a support network from other franchisees.
- You’ll need to adhere to strict guidelines, which can sometimes be limiting, especially when it comes to choosing a location and suppliers.
- There are high associated costs with running a franchise, and you should be prepared to give back a chunk of profit through royalties and fees to the franchisor.
- A high entry level where you’ll need to pay a purchase fee up-front, so should already have a starting capital.
Picking the Right Franchise Fit
When choosing which franchise to be a part of, you should conduct in-depth research and compare various factors, such as the price, creative freedom, entry requirements and the overall fit for the brand. If this seems overwhelming, you can hire a professional franchise advisor who is well-versed in different factors that form this type of business and is suited to help you pick the best franchise to ensure the perfect fit. This way you’ll need to pay a bit more, but can be sure that all the areas are covered, which is cheaper than realising halfway through that you’re not compatible with the business.
Discovery Days at the Franchises
Once you have selected a few of the potential franchises, get in touch with them to discuss if you can arrange a meeting & show-around during Discovery Day. You will have an opportunity to discuss the ins and outs of the business with the owners & employees, get to know the people behind the scenes and visit the office and franchises that are crucial to the business.
Additionally, you should be given a Franchise Disclosure Document that breaks down the cost of owning a franchise. These usually include a one-off franchise fee, training, marketing, equipment, property costs and other miscellaneous fees.
Discovery Days are like a two-way interview, where you can ask important questions and find out if the brand reflects your values and whether you can envision yourself being a part of the business. For the franchisors, it’s also a good opportunity to see if you’d be a good candidate to operate a franchise.
Afterwards, you should be contacted within a few workings days and receive a decision from the franchisor. If they like you from the get-go, then you should be given the next steps in the process during Discovery Day.
Examples of Successful Franchise Businesses
There are many companies offering franchises, including but not limited to:
Fast-food company McDonald’s is known internationally, and out of 38,000 locations, 93% of them are operating as franchises. The initial investment is often significant in the UK, and costs between £350k and £1,85 million (2018).
Starbucks is the largest coffee franchise in the world and has an expansion plan in the UK over the five years, particularly focusing on the drive-through locations across England. Currently, they’re not looking for franchisees, however, keep an eye out as new opportunities could become available.
Swarovski was established as a franchise in the UK in 1983. The company is in the jewellery industry and best-known for its crystal fine jewellery. The franchise requires a minimum investment of £130,000 and has a contract length of 5 years.
Other well-known franchise companies include:
- Pizza Hut
- Expense Reduction Analysts
- Costa Coffee
To be a successful franchisee, you need to consider many factors – from one-off upfront cost and ongoing royalties, inventory, property, marketing, training & whether the brand is the right fit for you.
Additionally, we’ve covered what a franchise, franchisor and franchisee mean and how they differ, as well as pros & cons that need to be taken into account before starting a franchise business.
Hopefully, this guide to franchise business has answered your questions and given you information about how such a business operates and whether it’s worth getting into.
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