Franchise Your Business - Advantages of Franchising

There are an estimated nearly 1,000 franchise systems in operation throughout the UK. Franchises come in all shapes and sizes from global restaurant and hotel chains through to small hyper-local businesses offering children's entertainment classes. Each franchised businesses has embraced the huge advantages that franchising can bring including: 

Network Growth - Franchising allows a business to grow into a major brand far quicker than 'organic' growth. When a business chooses to franchise, it uses the financial resources, dedication and local knowledge of multiple franchisees to help grow simultaneously in different locations. Each franchisee pays for all of their own equipment and set up costs, which means there is little cost to the franchisor. This allows a brand to be built far more quickly compared to the franchisor doing it themselves. 

Lower Overheads - Franchising is perfect for a business owner that wants to maintain a relatively small 'Head Office' function. As it is the franchisees who go out and sell the product or deliver the service in their local area, the franchisor does not have the day-to-day hassles of the operational aspects of the business. The franchisor can generally operate on a very lean basis as the function of Head Office becomes predominantly about supporting the franchisees and giving them the right tools and materials to run the business.

Continuing Revenue Streams - The franchisor usually charges franchisees the following fees:

  • Initial Fee - a lump sum payable up-front for "buying" the franchise. In return for this, the franchisor provides the training, a package of equipment and support and assistance in setting up the business;

  • Management Services Fee - a monthly fee paid by the franchisee in return for ongoing support and assistance provided by the franchisor. This is usually expressed as a percentage of the franchisee's Turnover;

  • Marketing Contribution - a fee that  each franchisee pays that goes into a collective 'pot' which the franchisor can use for advertising and promoting the brand

 

There are other fees that a franchisor may charge including Product/Service Fees or IT Support Fees, however these vary from network to network. The key thing is that the franchisor gets the benefit of these continuing sources of revenue for the duration of the Franchise Agreement.

Recession Resistant - OK, no industry is recession proof. However, businesses that use franchising have been proven less likely to fail in a recession than others.  One reason for this level of security is that franchisors tend not to be exposed to the high levels of debt and overheads that are involved in non-franchised businesses. However, the main reason in our view us that each business in the network is run by a dedicated franchisee who will work tirelessly to protect his or her business.

Economies of Scale - buying coffee or baguettes for a single cafe unit will likely mean paying a higher price per item than paying for a network of 100 cafes! The more units, the cheaper the item price and the more competitive franchise units will likely be. Some franchisor's will have special rebates in place with suppliers to their network (as an extra source of income), but this is not always the case.

Franchise Your Business - The Franchise Agreement

Underpinning the franchise relationship is the Franchise Agreement, a detailed contract between the franchisor and franchisee which sets out their respective rights and responsibilities. The Franchise Agreement will be heavily weighted in the franchisor's favour, in order to ensure protection of the Brand and maintenance of brand standards, it would also include clauses dealing with:

  • The rights being granted to the franchisee

  • The support being provided by the franchisor

  • The operational obligations of the franchisee

  • The payment of fees by the franchisee

  • Restrictions on the franchisee to protect against competition

 

With over a decade of experience advising franchisors on how to structure their franchise operations, our team are well placed to draft a bespoke Franchise Agreement which properly meets the needs of your business and provides the strongest possible foundation for your franchise growth.

Contact us now to arrange a free, no obligation, chat:

0141 463 7065

Glasgow, Scotland

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