"Setting up a business doesn't necessarily mean starting from scratch and going for it alone - there are other options to consider", says Reg Bodman of Business Link.
FRANCHISING - the granting of a licence from one person (the franchisor) to another (the franchisee) - enables the franchisee to trade under a well-known brand name and have the confidence of setting up with a proven business idea behind them.
As well as using the trade mark/name the franchisor's methods of marketing, managing and administration within the businesses are adopted too. Not surprisingly some 95% of franchisees are still operating profitable businesses five years down the line. Well-established examples include Dyno-Rod, Prontaprint and The Body Shop.
Sounds ideal? It shouldn't be viewed as an easy option, there are advantages and disadvantages to consider, Business Link offers some impartial advice:
On the 'up' side
- Raising finance can be easier: proven franchise projects are often more favoured by banks than small business start-ups as they are viewed as being of lower risk.
- Services offered by the franchisor: the franchisor should offer enough training and guidance to enable a person with no previous experience to set up in business and must provide a range of support services to help ensure that the business continues to run smoothly and effectively.
- Inheritance of a well-known brand name and benefits from economies of scale from operating as part of a large organisation.
And on the 'down'
- Although franchises are legally independent, franchisors can exert high degrees of control over the operations
- High franchise costs. These may include and initial franchise fee, to cover the costs incurred by the franchisor in setting up a new outlet; a management services fee, a regular payment to the franchisor for the continuing services provided and contributions towards overall advertising and promotion handled by the franchisor.
- Bad publicity related to the brand as a whole, can have an adverse impact on individual franchises.
- Franchisees may face restrictions when wishing to sell, as franchisors will want to ensure subsequent franchisees are suitable.
Planning
- Choose your franchise option carefully: there is a wide range of franchise opportunities on offer - from job franchises to business franchises. Consider your personal motivations and decide which type appeals.
- Formulate a business plan: as with all new business ventures, a comprehensive business plan is imperitive.
- An initial appraisal of the franchise should be carried out - conduct internet research, look at competitors and their activities. Contact other franchisees of the business, the franchisor should provide names and addresses.
- Consult a specialist solicitor and accountant when negotiating a franchise.
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