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What is franchising?
Franchising is a method of distributing products or services.
At least two levels of people are involved in the franchise system, (1) the franchisor, who lends the trademark or trade name and the business system to (2) the franchisee, who pays a royalty and often an initial fee for the right to do business under the franchiser’s name and system.
Technically, the contract binding the two parties is the franchise, but that term is often used to mean the actual business that the franchisee buys from the franchisor.
What is the best advantage that franchising has over independent small business?
Franchisees are never alone, which is one of the best benefits that one could hope for in this tough business world. On one hand they have the franchisor to support them and on the other they have franchisees that are having parallel business experiences.
Unlike brand new business concepts which can take years to launch, a franchise allows you to get into business quickly and easily. Franchises feature tested business systems, perfected products or services and operational procedures that are already in place. And as a franchisee, you can take advantage of training programs and support services that are designed to get you up to speed quickly
Furthermore, as a franchise matures, the brand name and trademark becomes more valuable. So as franchisees consolidate in the marketplace they are actually adding value to the group as a whole.
Similarly, as a franchise grows in numbers, the multiplication of sites creates a stronger market presence, which benefits all franchisees.
Franchising Tips.
Work out what you can afford?
For an established successful franchise a rough guide is to that the banks will usually lend up to 70% of the total cash requirements. If you have, for example, savings of £30,000, you could expect to be able to finance a franchise with start-up costs and working capital totaling £100,000. Security will probably be required for at least part of the money. For a new or relatively untested franchise with an increase in risk for all parties, the money available will probably be nearer to the traditional pound for a pound basis i.e., a need for £20,000 contribution into a start up cost of £40,000. The more tried and tested the franchise, the better the terms.
Projections and contracts
Ensure your financial projections cover all the foreseeable expenditure in setting up the business. Remember businesses need time to establish themselves and may not grow as quickly as you first envisage.
Not being able to estimate the amount of money you need is one of the main pitfalls of starting a new business.
Evaluate all possibilities
If, after all you’re research looking at the good and the bad, and you are still encouraged, discuss your plans with an accountant, experienced businessperson, business advisor, and importantly your bank manager. Cash flow, working capital needs and profit projections are the core of preparing a good business plan. If is a realistic plan and the franchise is a good one, you should start to see a return on your investment in one to three years. With a growing awareness among business people of the benefits of franchising, there are an increasing number of franchise opportunities available. However, you must evaluate each situation very carefully before parting with any of your money, even a deposit.
The Advantages Of Franchising.
A franchise is not a short cut to riches, but it can be a safer way of establishing your business. With a properly constructed and viable franchise operation, the risk of failure can be considerably less than it would be for someone setting up a similar business on their own.
What are the advantages?
The greatest attraction for franchising is that it uses proven business know-how, supported by an actual trading performance, which has been tried and tested.
You get an established name to trade under - a name, which may well be widely advertised by the franchisor.
You are also allotted an agreed area to trade in so there is no overlap with other franchisees.
Training should also be provided on both the specific skills required for the franchise plus the more general skills of running a business.
- You can benefit from the franchisor's bulk buying power for supplies - the discounts should be passed on to you.
Finally, the collective experience of a network enables a franchisor to develop forward market strategies. This helps to keep your business competitive.
Read the British Franchise Association Report for 2008
Visit www.franchisevideos.co.uk to view videos of Franchise Opportunities
Visit www.topbusinessideas.com for information and advice on Business Opportunities.
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