Business format franchising is the granting of a license by one person (the franchisor) to another (the franchisee), which entitles the franchisee to trade under the trade mark/trade name of the franchisor and to make use of an entire package, comprising all the elements necessary to establish a previously untrained person in the business and to run it with continual assistance on a predetermined basis.
Franchises remain inherently more successful than their non-franchise counterparts, therefore the banks will view franchising as a safer more attractive investment. As a result, you are more likely to secure funding on a franchise, as a proven business model, than if you were trying to start up a small business from scratch. This attractive package naturally becomes a serious consideration for many individuals looking to start up a business.
It is vital that the possibility of a franchise is taken seriously however. Franchising is not a quick-fix solution nor is it a part-time hobby. Today franchising encompasses a whole multitude of business disciplines and markets. It is a serious business option and one that requires hard work, plenty of enthusiasm, dedication and business acumen. That is not to say that there isn't a suitable franchise business out there for you, but you do need to choose very carefully and with caution. The bfa suggests some steps that should be taken when embarking on the possibility of a franchise investment:
Keep an open mind about what industry sector you are interested in
- Finances: Do your sums and find out realistically what funding you have available or potentially available. If you are looking to raise finance it is worth noting that there are three major banks that the bfa accredits because they understand and specialise in franchising. By speaking to a bank that is familiar with lending on franchise investments you are more likely to secure the funding you need.
- Lifestyle hurdles: Ask the question "Do I fit this business model?" For example, if you are looking to invest in a restaurant, are you able to work nights and weekends? If you are investing in a cleaning business, it will be difficult if you have an adverse reaction to certain chemicals. It sounds logical, but be sure of the chosen field.
- Do your research: Market research is vital, take time to look at the different types of business models available to you. Keep an open mind about what industry sector you are interested in rather than simply choosing a business sector that you understand or have experience in. Be aware that when you sign up to any franchise you are buying someone else's brand and they will want you to adhere to their systems and methodologies. It may be that a completely new area suits you as it means no preconceived ideas.
- Honesty is best: Make sure that you thoroughly investigate any franchise opportunity that you are seriously considering. The franchisor should be transparent about success, where in the country it has performed well and also where it hasn't. Ask to speak to a number of their franchisees; not just the one the franchisor recommends. If the franchisor is a bfa member, you will already have a certain level of assurance that the business is independently measured against an ethical code of franchising practice.
- Look carefully at all costs: Make sure that the franchise investment includes the cost of operating capital and stock, or at least if it doesn't, that you are aware of it. The last thing you need is surprise bills and other charges cropping up. This is really about doing your own due-diligence.
- Get advice: With any business contract make sure you read the small print and get legal advice if required. Franchise agreements are generally very large documents and can be very involved. Speak to a bfa accredited professional advisors, as they will be able to check the validity of the agreement and identify possible problems.
A good franchise network, run by dedicated, motivated people provides the strong platform needed for a success. The ability to operate as a local business with understanding and commitment to the area and people, combined with the national support systems and brand, has allowed many franchises to remain viable, secure and successful businesses.
For more information please visit www.thebfa.org [1]