Franchising for beginners
Franchising for beginners
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Are you looking to invest your money in purchasing a franchise? You may like the idea of owning a franchise, but if you are considering buying into one it is a good idea to have some simple background knowledge. This simple guide provides you with an insight into franchising for you to decide whether it is right path for you.
What is a franchise
A franchise is an agreement between two parties that consents one party, the franchisee, to promote a product or service operating under the trademark and operations of the other party, the franchisor. Essentially it is a cross between working for a company and running your own business. You have the opportunity to work with an already proven business model with the freedom to be your own boss.
The two main types of franchise methods are; business format franchising and product and trade name franchising. Business format franchising provides the franchisee with a trademark and logo
Types of franchise methods
along with a complete business model to work from. The franchisee must uphold the standards and reputation of the franchise, which is why support and training is provided by the franchisor.
Product and trade name franchising typically relates to industries such as cars or soft drinks and involves the franchisor offering the product, logos and advertising whilst the franchisee sells the franchisors product or service.
Benefits of a franchise
In the past five years the overall economy has shrunk by 2.5% however over the same time frame franchise contribution in the UK has grown by 20% leaving the overall contribution of franchising to the UK economy at £13.7 billion (BFA NatWest Survey 2014). This growth could be due to the fact that franchisees have the opportunity to build their business using a proven business model alongside ongoing training and support from the franchisor.
A key benefit of purchasing a franchise is that the franchisor should have previously found out what works and what doesn’t which ultimately builds a proven business model for you to work from. Benefits also include;
- Support from the franchisor but you are still managing the business as your own boss
- Could reduce the risk of business failure
- You have the opportunity to trade under a recognised brand
- Sales and marketing assistance
- 1st year growth strategy and action plan should be provided
Franchising terms
Franchise – A franchise is the relationship of an individual and the owner of a business, who uses the same business name and format.
Franchise Agreement – A franchise agreement is the contract that is signed by the franchisee with a franchisors before the franchise is final.
Franchisee – The franchisee is the person who receives the license from the franchisor to operate business under their company trademark.
Franchisor – The franchisor is the company that owns the right to sell the business under trademark to a franchisee.
Territory – A franchise territory is the area of operation outlined to the franchisee.
Franchise Fee – The franchise fee is the initial amount of money that the franchisee must pay to the franchisor to purchase the franchise territory.
Business Plan – A business plan is a document that outlines the goals and objectives of a business.
BFA full membership – The British franchise association (BFA) “assesses and accredits franchises that meet its strict and extensive criteria for membership based on a company’s business structure, its contract with its franchise owners, its operational procedures and its proven success over time under a franchise model”
Renewal – Once expired, a renewal is the continuation of the franchise agreement.
