ETHICAL FRANCHISING

A proven route to being your own boss, says Tom Endean of the British Franchise Association

The recent news about employment figures in the public sector and the number of people that may soon be looking for new career routes is a message that needs to be viewed in a wider context.

Over the past two years the UK has seen several occasions of large redundancies and rises in unemployment. This can be severely demoralising for many, sometimes causing real hardship that we cannot ignore. However, occasions like this also open up other doors of possibility.

When unemployment rises it is not uncommon to see an increase in the number of people looking to start their own business as a means of taking control of their future. This, however, does come with one main hurdle: the success rates of small businesses. Starting a business from scratch is no easy task and many more will fail than succeed - floored by unrealistic business models, lack of cash flow or problems with the day-to-day running.

This is where franchising comes into its own. It has the ability to help countless people start their own business, but with the security of using a business model that is already proven, one that you are trained on and supported on an ongoing basis. It removes or reduces many of the hurdles that prevent other businesses from surviving.

Despite recessionary pressures, the franchise industry contributed £11.8billion to the country’s GDP last year, with overall profitability levels remaining strong, according to the latest findings from the annual NatWest/British Franchise Association survey. The past year was also a period of expansion for many franchises, with the total number of franchise systems now reaching 842 and the total number of franchisees growing from 34,600 to 34,800.

Franchising has greatly outperformed other start-up businesses. Its formula of a locally owned and run enterprise, driven by a small business owner with branding, economies of scale and support from the wider network, gives the consumer the best of both worlds and the business a far better chance of success.

In many ways the combination is very beneficial, but it doesn’t necessarily make it an easy option. It still requires hard work, dedication, professionalism and a long-term commitment - and you need to be aware of the downsides as well as all of the benefits.

ADVANTAGES
A franchise business has a proven business model, which is transferable and can be taught. This is then supported by the franchisor, giving you a much higher chance of success than if you were looking to start a new business from scratch. You also own the business, and at the point you retire or move on are able to realise your capital investment by selling the business.

As the owner of the business, you can exercise your enterprising nature by capitalising on this more robust business model, but within the proven boundaries of the franchise model. You are also more likely to gain finance for a franchise, as banks recognise the higher levels of success and are therefore more supportive. Just ensure you do your homework to see if you are right for the business and the business is right for you.

DISADVANTAGES
A franchise requires a lot of hard work and commitment, as it is still a new business that needs to become established. This means you need a lifestyle that can support this requirement. On top of this, despite the high success rate, success is not guaranteed. There is always a risk that the business won’t turn out as you would like. You buy into a proven business system for its benefits, but you also take on responsibility for following it. If you’re someone who has to do things your way, then franchising might not be for you.

CONSIDERATIONS
If you are considering investing in a franchise, you need to be aware of all that is involved and how you can be in the best position to identify which businesses may best suit your needs.

• Membership of the bfa: the bfa accredits franchisors using a stringent set of criteria based on a code of business practice and the European Code of Ethics for Franchising. All members are then listed on the bfa’s website to allow potential franchisees to check which brands have chosen to be measured by and passed these checks.

• Investment level: levels of investment range from smaller sums you may already have available, to larger amounts you may need to take out a bank loan for. There are three major banks the bfa accredits as specialists in understanding franchising and providing specific teams to work with franchise business loans.

• Lifestyle: franchising is not a hobby. You will need to make sure you are happy with the commitments needed for your new business. You will also need to consider the support and understanding of those around you, such as your family and friends.

• Speak to existing franchisees: you want an extensive list to choose from so you can speak to both those that are successful and not so successful, which will give you a much more rounded view of what is involved.

• Understand the business: make sure you understand all the business operations and what is involved on a daily basis as part of running the franchise.

• Investment costs: establish what costs are involved, both upfront and ongoing - and, importantly, what you get for your money.

• The people: don’t underestimate the importance of meeting the people involved at their office and finding out who you will be in contact with and what their experience in franchising is.

• Success rates: ask for success rates of other franchisees. There may be failures, but the important aspect is to understand why.

• Recruitment: if a franchisor doesn’t seem to be picky about who it recruits, walk away. You want to see that it is stringent in its process.

• Professional advice: there are a host of professional advisers accredited by the bfa who specialise in franchising, including consultants, accountants, solicitors, banks and even media organisations. They are invaluable in making sure you’re taking the right steps and don’t miss any vital information. When it comes to reviewing the franchise agreement, make sure you use a franchise solicitor - it can save you a lot of money in the long run.

Visit the bfa’s website at www.thebfa.org for objective advice and access to numerous educational and advisory resources.