Franchises | Business To Business Classifieds

For anyone who wants to run a business, but hasn't formulated a particular business idea, buying a franchise is an option worthy of consideration. Instead of setting up a business from scratch, franchising uses a proven business idea. Franchises have a much lower failure rate than completely new businesses. However, hard work is still needed hard to make the franchise a success. Compromising some of your own business ideas to fit in with the franchisor's terms may well be necessary. "Franchising," describes a number of very different business arrangements. It is important to understand exactly what is on offer.

Business Format
This is the most common type of franchise. The owner of a business (franchisor) grants a licence to another person or business (franchisee) to use their business idea, often in a particular region. The franchisee sells the franchisor's product or services, trades under the franchisor's trademark or name and benefits from the franchisor's assistance. In return, the franchisee pays an initial fee to the franchisor and then a percentage of the sales returns. The franchisee owns the outlet they run. However, the franchisor controls product marketing, sales and the use of the business idea.

Other Arrangements

Distributorship and Dealership
You sell the product but don't trade under the franchise name. There is more freedom over how you run the business, but you lack a known brand name and /or trademark.

Agency
Selling goods or services on behalf of the supplier.

Licensee
You are licensed to make and sell the licensor's product. There are usually no extra restrictions on how you run your business.

Multi-level marketing
Some businesses offer franchises that are multi-level marketing. Self-employed distributors sell goods on a manufacturer's behalf. You get commission on any sales you make, and on sales made by other distributors you recruit. Be aware that some multi-level marketing schemes may be illegal.

Assessing A Franchise
In assessing if a franchise represents a sound business opportunity, some important considerations are:

The nature of the business and its operation.
Location.
Success - the number of franchises in the UK, the length of time in business and how financially successful they are.
Amount and strength of competition in the same market sector.
Market research analysing the public perception of the franchisor's brand.
Initial and ongoing costs.
Training and support.
Conditions and restrictions, including franchise term and renewal options.

Ask questions and look for evidence of any claims made. Visit other franchisees and talk to them. Ask the franchisor for a full list of past and present franchisees. Take advantage of other sources of information and advice. Ask your bank, since many have franchising specialists. Make the most of other advisers such as "Business Link," your solicitor or accountant.

A Business Plan
As for any other business, you need to draw up a business plan when buying a franchise. This will help you assess the prospects for the business and identify potential weaknesses. A business plan is also essential for raising finance. Various Business Plan packs can be downloaded from the Internet.

Advantages and Disadvantages
Buying a franchise can be a quick way to set up your own business. However, there are also a number of drawbacks.

Advantages
1. Your business is based on a proven idea. You can check how successful other franchises are before committing yourself.
2. You can use a recognised brand name and trademarks. You benefit from any advertising or promotion by the "franchisor."
3. The franchisor gives you training, help setting up the business, a manual telling you how to run the business and ongoing advice.
4. You usually have exclusive rights in your territory. The franchisor won't sell any other franchises in the same region.
5. Financing the business may be easier. Banks are more likely to lend money to buy a franchise with a good reputation.
6. Risk is reduced and is shared by the franchisor.
7. If you have an existing customer base you will not have to invest time looking to set one up.
8. Relationships with suppliers have already been established.

Disadvantages
1. Costs may be higher than you expect. As well as the initial costs of buying the franchise, you pay continuing royalties and you may have to agree to buy products from the franchisor.
2. The franchise agreement usually includes restrictions on how you run the business. You may be unable to make appropriate changes to suit your locality.
3. The franchisor might go out of business, or change the way they operate.
4. Other franchisees could give the brand a bad reputation, thus undermining your business.
5. Selling a franchise may prove difficult since it can only be sold to someone approved by the franchisor.
6. Reduced risk means you might not generate large profits.

Tips
The franchise agreement is crucial. Don't sign any agreement, or part with any money, until you have consulted a solicitor. Get a specimen contract for them to review.

Typical Agreements

Term - Establish how long the franchise lasts. Ascertain renewal rights and terms.

Territory - Verify the area covered by the franchise, along with exclusive rights to sell within it.

Fees - Ascertain the initial fee and the percentage of sales revenue to be paid. If a regular management fee is payable, determine what it covers.

Support - Clarify how much help will you get starting the business, along with ongoing assistance.

Restrictions - Find out what restrictions are there on what you're allowed to do in running the business.

Exit - Determine what happens if you can't continue in business for some reason, perhaps due to ill health.

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