Franchising is indeed an interesting prospect for a business.
But how does Franchising exactly work?
Here we explain all about how Franchising works in the UK.
Franchising Your Way to Success
The A – Z of How it Works
Franchising offers a great way for local businesses short on resources to make successful business templates work for them. In many cases, franchising further helps the franchisor’s already successful business strategy, thus creating a sort of runaway phenomenon. This prospect of mutual benefit is what really makes franchising one of the most popular business ideas of recent times – especially in ever-growing consumer markets like the UK – so learn exactly how it works.
Our What Is Franchising page explains the idea that powers franchising. We also summarised the brief statistical impact such franchise business models have had on the UK economy on the whole. But how does franchising exactly work? What procedures must the franchisees and franchisors go through to establish a successful franchise unit?
We will try to answer these questions in this short article.
1. Choosing the Franchise
You may well be aware of the industry you want to work in. This decision largely depends upon what you are passionate about, and your past experiences in that industry. Once you have zeroed in on a particular industry, you may want to take a look at the franchise trends and profitability statistics for the same. Our free guide to choosing the correct franchise will help you narrow your options down.
2. Know More About Your Franchisor
We cannot overstate the importance of this step. You should carry out a thorough research about the franchisor you’re about to get in business with. This includes going through their franchise prospectus, marketing strategies, legal terms and any other conditions of business. You should be able to get a fair idea of the costs involved, profit margins available and the overall state of finances, should you choose to take things further. This will help you understand the profitability of the franchise venture in better light.
It also helps to get in touch with franchisees who are already in business with the said franchisor.
3. Legal and Financial Help
Any and every Franchise Agreement should be drawn up only after a specialist franchise lawyer has assessed it. It’s important to know that your legal interests are looked after by a professional when you get into a contract that may be valid for years.
Franchisors will also want you to be able to raise a particular sum of money before you are handed the franchise. It is quite common for franchisors to expect you to raise at least 40% of the initial costs all by yourself (not borrowed). The remainder can usually be raised using specialist franchise finance providers or banks. In some cases, franchisors can also offer franchise loans to help you get started. To read more about how you can secure funding for your franchise, please head to our Franchise Finance page.
4. ‘Buying’ the Franchise
When you are sure that you want to get into business with the franchisor, the next step is to ‘buy’ the franchise. It’s worth noting here that even when you pay the franchise fee and other costs, you never really ‘own’ the franchise. You will only be in a business relationship with the franchisor. You will, however, end up owning assets that you pay upfront for. These usually include inventory, furniture etc.
Our step-by-step guide to buying a franchise covers all the important points you need to keep in mind while getting into a Franchise Agreement.
5. Training, Recruitment, Operations
Many franchisors offer thorough training as a part of their franchise program. The training period can stretch from a few days to months, depending upon the nature of the business. Upon successfully completing the training period, you will be ready to take over the franchise.
Most franchisors will also help you hire and train personnel. Your franchise will become operational at this stage.
6. Profit Sharing
Once the franchise is operational, both the franchisor and the franchisee can start earning returns on their investments. The profits made by a franchise are usually shared with the franchisor as per the initial profit sharing agreement. The type of the franchise you choose will dictate how these profits are shared.
Summing It Up
In summary, we can say that franchising works on the basis of trust, expertise, capital and profit sharing. When all of these factors come together to make a viable business work, franchising can yield significant profits for all the parties involved.
Do visit the franchise resource section on our website to access our free franchising guides.