The term 'franchising' covers a variety of arrangements in which the owner of a product, process, service allows someone else to use it in exchange for payment. The most popular use of the term is in relation to business format franchising, which involves the granting of rights by a company (the 'franchisor') for a third party (the 'franchisee') to operate their business system using a common brand and format for promoting, managing and administering the business. It should be a proven business system that is offered – not merely the right to sell a product or service.
What are the advantages of franchising a business?
Franchisees invest their own capital in the business and effectively pay the start-up costs for each individual outlet, so the capital cost to the franchisor of expansion is reduced. Using the individual resources of individual franchisees also means a company can expand more rapidly via franchising.
Franchisees are generally more motivated and committed to the success of the individual businesses than employed managers, having invested their own capital in the business.
What are the disadvantages?
Although it usually costs less to establish a franchise operation than a company-owned network, it is not true that franchising a business requires little capital. If done properly, there are substantial costs involved in piloting the operation, developing the package, recruiting and training franchisees and in providing ongoing support.
There is often little profit in the early stages of a franchise operation. There is the initial fee paid to join the franchise though that should not be unrealistically high and often needs to be reinvested in developing the network. Selecting suitable franchisees can be a time-consuming and costly process in itself.
Could my business be franchised?
To franchise your business, there should be a steady or growing demand for your product or service, which can be predicted to continue. Your business should have its own distinctive image or concept that sets it apart. Your business format should be fairly simple and capable of replication. There must be a sufficient profit in the business to provide a worthwhile income for both franchisor and franchisee. Contact the British Franchise Association for its franchising guidelines.