Franchises offer one possible route to starting your own business, and franchise businesses are quoted typically as having higher business survival rates than entirely new startups.
In the current economic climate there appears growing interest in franchising opportunities, particularly with many people facing or experiencing redundancy.
So what is a franchise?
Franchises use a business model with brand from a proven, successful business already created by the Franchisor. Common examples include McDonalds and Subway. However there are thousands of smaller franchises & brands available , with everything from print services, & vending machines, to Beauty and hairdressing, and car valeting.
How do you become a franchise?
The first thing is to find details of franchises. There are now hundreds of agents, numerous franchise events , and websites giving information.
Once you have researched the market for a suitable opportunity, and make initial contact, you should receive some general information, followed by meetings to with the franchosors representatives to discuss your requirements.
As things progress, you will reach contractual stages.
The franchise agreement will typically require an initial fee to use the brand, and business structure, (name etc), as well as annual fees , and a percentage of profits.Terms and descriptions of fees vary, but annual fees may be referred to as management fees for example.
There will typically be guidelines and contractual requirements relating to premises , literature, marketing, web sites, and varying levels of support for these. For example some will provide web site pages so that potential customers in your geographic area can find you, or you may have to fit out premises according to brand guidelines.
There will be some form of training, monitoring, and support for you.
What does it cost to start a franchise?
Franchises can cost anything from a few thousand pounds to hundres of thousands depending on the nature of the business. You will also typically pay annual fees and/or percentage of profits.
Some things to consider
As the investor, you have greater incentive than being an employee, since you will keep a share of the profits. This can be a great motivator! Keep in mind that you also have to take losses if they should occur. With any business there is risk. Although the franchise is a proven model, and may work for other people in other areas, there is no guarantee that it will work for you.
Do your own research! Don’t just explore the information provided about market sizes, market share, pricing etc. Look at the competition for yourself. Speak to other franchisees about the specific franchise you are considering.
What level of investment is needed? Initially , perhaps anything from a few thousand pounds, , What annual fees will you pay? Typically you will pay a percentage of profit, plus an annual fee.
What skills are needed?
Typically franchises are structured so that in theory, almost anyone could invest in one. Running the franchise yourself, or with your partner perhaps, or with employed staff.
How much time is required? Some franchises are structured for people who wish to work on a part time basis, others require investment in premises , staff etc.
What level of return can you expect?
The franchisor should provide financial information to illustrate potential returns, profits. This should help establish the payback period for your original investment, and help you to assess the level of annual income you will earn. Remember your salary is part of the cost of running the business.
What risks are there?
Changes in the marketplace , technology, legislation, etc. can all affect the franchise as with any other business.
What Levels of support are provided?
Typically training, materials, marketing, advice, mentoring, coaching, but this varies depending on the franchise.
Is there an exit strategy?
As with any business, at some point you are likely to consider retirement, selling the business, or transferring the business. Check the agreement and options.
Choose a franchise
Consider your available investment level, and return.
Explore the type of franchise, e.g. service, or product based, and determine the most suitable for you..
Think about the lifestyle you might want- for example do you prefer to work from home? Or is running a premises 5-7 days a week for you?
Examine type of support provided by the franchisor- and compare it against your experience, skills, and level of confidence in running the business.
Assess figures provided in terms of balance sheet, projected profit and loss, and key financial measures.
Ask to speak to other people who are part of the franchise you consider joining. This will help you to judge the opportunity based on experience of people like yourself.
Develop a business plan. This is essential! Find out more about business plans and planning.
Be realistic. Do you have the capability and motivation to make it work? Just because a franchise works for one or more franchisees, it does not mean that you will succeed.
As always, take appropriate financial and legal advice.
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