What is business franchising?
Franchising can offer a much lower-risk way of starting up a
business than doing everything yourself and from scratch. It's not
all plain sailing, of course, but it's well worth a look if you
don't yet have a clear vision and new concept for a business.
Franchising: the basics
- Franchising is where a company grants a license to others
to sell their product or service under their brand
name.
- You usually pay for the license and have to go
through a series of interviews to make sure you're suitable.
- This agreement places the franchisee (the person who receives
the license) under certain restrictions, which vary
according to different franchise networks.
- You might have to make sure every last aspect of your business
adheres to a franchisor's (the company who own the brand) rules,
from what tie you wear to how you sign letters to what colour
carpet you can have.
- Or it may be much freer - you simply buy the right to use the
brand name and logo and other than that make the business
completely your own.
- The extent of authority the franchisee has will differ
depending on the type of licensing agreement granted.
- The franchisor provides guidance as you set up and
run the franchise.
- McDonald's, Coffee Republic and Kall Kwik are examples of
famous franchises.
- There are more than 800 franchise operations in the UK.
Types of franchise
- There are different types of franchise and franchise license,
stipulating different terms and conditions on how control the
franchisee has.
- Business format franchising is the most popular
type. The franchisor grants a license to others to sell their
product or service under their trade name while all the time
retaining control of marketing and standards of the business. As
part of the agreement:
- The franchisor provides the training and
information for the franchisee.
- This enables them to set the business up without any previous
experience.
- The franchisor provides continual support that is
agreed in the terms of the license.
- As part of the training and support the franchisor may set you
up or provide you with discounted bulk-buy supplies.
- The franchisee owns the premises and controls the
operation of the outlet, retaining the majority of the
profits, but a predetermined percentage is paid annually to the
franchisor.
- Operating under an established trade name offers a readymade
customer base and security.
- Licensee franchising is where the franchisor
grants a license to produce and market its products, without any
limits on how the franchisee runs the business.
- In distributor and dealership franchising the
franchisee sells the franchisor's products, but not under the
franchiser's name.
- Sales & distribution franchising means the
franchise owner is on the road, selling or distributing the
products in a given territory.
- All franchise agreements will have their own unique variations
on the type of agreements above. Seek legal advice while in
discussion with the franchisor to monitor what is and isn't allowed
under the type of franchise agreements being offered.
Jargon Buster
Franchisor: A company that licenses their trade
name to another person or party.
Franchisee: The persons or business who have paid
to trade under the trade name of the franchisor.
FAQs
What types of business can be franchised?
Loads of different ones! Fast food outlets and restaurants
tend to be most common, but almost any industry can be franchised,
including estate agents, retail businesses, hotels and garages.
Such is the diversity that the International Franchise Association
now lists more than 75 different categories to describe its
members.
How can I tell if franchising is right for me?
Our guide, *Is franchising right for me?*, will help you
out with that one.
What are the advantages and disadvantages of buying a
franchise rather than starting from scratch?
Read our guide, *Is franchising right for me?*, for info on
that.
Resources
Smarta Business
Builder has everything you need to start and manage a business
all in one place.
NatWest has the longest established dedicated Franchise
department of the banks and recently launched a £100m Franchise
Fund in order to help boost the sector. This fund is endorsed by
the British Franchise Association and is aimed at people looking to
start up a franchise.
To find out more about how NatWest can help with
franchising, click here - or call 0800 092
9117.
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