Introduction
We have all heard of the term "franchising", and most of us know the people involved. After all, it now contributes more than $10 billion to the UK economy in many commercial sectors. But what exactly is it, how do some companies succeed in this area, but bring disaster to other companies? In this article, we will focus on:
Basics - What is a franchise and how does it work?
What do you need to know if you are considering buying a franchise?
If you are considering developing your business through a franchise, what should you consider?
Basic knowledge of franchising
This concept is quite simple. In a franchise, an established business ["franconer"] grants a person ["franchisee"] the right to trade under the franchisor's trademark or trade name.
Most franchises are actually "commercial form" franchises. This means that the franchisor has developed a business concept, including the trade name and method of operation, and they use this concept to train franchisees how to run their business. The franchisee operates his business in the name of a franchisor and operates under some fairly strict control and guidance. These are listed in the franchise agreement and are usually an operating manual.
In essence, a franchise agreement is basically a trademark license, with many operational instructions and controls on the franchisee.
In many cases, franchisees are given "special" areas and can operate during the term of the franchise agreement.
In exchange for the right to use the trade name and method of operation, the franchisee usually pays the franchisor:
Upfront cost [usually 5k or more]
Ongoing payments [called "franchise fees" or "management service fees"] are usually paid monthly and are often a fixed percentage of the total sales [usually 5 - 11%] or a set monthly number.
Franchisees sometimes need to donate to a central marketing fund operated by the franchisor.
In addition, the franchisee may be required to pay for the purchase of homes, inventory, equipment, and the like.
Therefore, for franchisees, franchising can be a very fast way for business growth, with lower management costs and lower risks. We will cover this in more detail later in this article. For franchisees, franchises can provide attractive opportunities to own and operate their own businesses, but with proven business concepts and training and support franchises. In some cases, franchising can also provide a very rare opportunity for a true work/life balance.
If you are considering buying a franchise, what do you need to know?
But unfortunately, like everything in life, it is not always that simple. Although the survival rate of franchise companies is much higher than other startups, franchisees often fail. Some people often lose a lot of money because of their fault.
Here are some dangers to avoid:
Danger First - Did not do enough "homework" before paying cash
Most franchisees can "talk". Their job is to convince you that their franchise will bring you wealth and success. However, while many franchisees are rigorous, honest and professional in dealing with future franchisees, unfortunately some of these franchisees are not.
Remember - this is a "business to business" agreement when you accept a franchise. There is no consumer law to protect you, so your legal remedies may be very limited. It is your responsibility to review what you are told and never to commit and predict face value.
It's worth remembering the old saying: "If this sounds too good to be true, it might be"...!
Things to check before registration:
Are the numbers in the franchisor's forecast really added up? Consider having your accountant look at the projected numbers to see if they are true. Ask other franchisees. Do these numbers allow for an appropriate margin of error? For example, you should be able to make a slightly conservative forecast and still make a profit.
Study your market. Has the customer's demand for your product/service been confirmed? Does your area have the right demographics [distributable income, buying trends, etc.]? Is the market already oversaturated with competitive products?
Get insider information from other franchisees [and be wary of franchisees who don't want you to talk to other franchisees].
How long has your franchisor been established? Have they had a successful track record of success? If they are a new business, this does not necessarily prove a future disaster. But in fact, compared to a well-established company, the new business bears a much greater risk.
If you are a member of a network group, consider discussing opportunities with other members to get their thoughts and feedback. They may give you a more objective view than a close friend or family member.
Search online for comments or information about your franchisor. There are a lot of satisfied customers there, or a lot of complaints?
Is the franchisor a member of the British Franchise Association? Keep in mind that not all franchise systems must be well thought out or thoroughly tested. The membership of the UK Franchise Association - requiring the signing of an ethical franchise charter - is a good indicator of opportunity to consider, although there is no other way to properly examine and study the franchise.
No. 2 Danger - Take on a franchise that does not meet your personal strengths
You need to think for a long time whether the franchise is suitable for your personality and skills. For example, you can imagine that after a frustrating day at the office, nothing is more lovely than leaving the mouse and your own cafe. But pay attention to the philosophical thinking of "grass is more environmentally friendly." No matter what kind of franchise you take, it can involve hard work, and unless it's something you love, it will never be satisfactory.
Key features that franchisees look for among their franchisees include:
Passionate about their industry. Will you be a good ambassador for their brand?
Willing to operate within the franchisor's operating system. [In other words, if you are a free-spirited entrepreneur who wants to do your own thing, the franchise will not be for you.]
Motivation and strong work ethic.
In many cases, financial knowledge and management skills.
Danger No. 3 - Lack of negotiation opportunities
For most franchisees, franchisee recruitment is the biggest challenge they face. Competition among franchisees for franchise is often fierce. This is especially true in the early stages of franchising. If you are one of the top 5 potential franchisees for a franchisee, you may have more room to discuss the cost than your idea. Some franchisees will never negotiate, but other franchisees will negotiate, so it's worth trying.
Danger 4 - does not accept advice
It is tempting to save costs by not getting legal advice. Unfortunately, this could become a false economy. Most BFA affiliates will review your franchise agreement and advise you on an agreed fixed fee. Although many franchisees will not negotiate the terms of their franchise agreement, BFA affiliates will be able to [i] explain to you the exact meaning of your franchise agreement to you; [ii] if any of your agreements Remind you if the content is non-standard or not feasible.
When you purchase a franchise, you assume some important commitments and responsibilities, which usually include obligations and restrictions that continue to be fulfilled after the end of your franchise. Consult an expert lawyer to give you peace of mind.
If you are considering developing your business through a franchise, what to consider
The various businesses involved in the franchise industry are shocking. Although the most obvious examples are high street varieties such as fashion retail stores, fast food restaurants and print/copy centers, there are also a number of service concepts offering franchises such as business coaches, car follow-up service providers, network organizations, children's activities, snack machines. Dealers and travel agencies.
More and more new companies are planning to develop from the start, focusing on the potential of long-term franchising. Therefore, accepting advice at an early stage is often worthwhile.
Franchising can be a very attractive way for many companies to grow. It has many features that benefit it:
Franchising often allows companies to quickly establish national businesses and achieve network growth rates within a few years, which is unimaginable in company-funded development.
The resources you need to open a franchise store are far less than the resources you need to open a company-owned store - franchisees will fund assets such as house leasing and renovation, recruit and train employees and tools for local marketing campaigns. This allows you to build a tight management foundation that focuses on assisting multiple franchisees to do business at the same time, rather than methodically opening branches after the branch and finding new start-up funds for each branch.
With a franchise route, you can reduce administrative expenses. If you do the right thing, your staff and management issues are reduced and you can focus more on developing your business. By accelerating expansion, your business network can achieve higher economies of scale, greater brand awareness, faster challenge to national contracts, and better visibility in the early days of emerging markets. Market leadership and establish a dominant position against competitors.
Since capital expenditures are generally low, yours...
Orignal From: The dangers and pitfalls of franchising
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