The pros and cons of running a franchise

Chris Gibson reveals the advantages and disadvantages of operating a franchised business concept

Despite the fact franchising has been a huge part of the UK and world economy for over a century, it is probably still one of the most misunderstood business formats for lots of people looking for stability and security in running their own business.

Why is this? Confusion is the likely one word answer. There is confusion about what franchising actually is and confusion over the pros and cons of buying into and operating a licenced business from a branded company.

Preconception
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So let us try and allay some fears, change the preconception and, to start with, clarify that word that even, after all the years of working in the industry, my mother still doesn’t understand or cannot even pronounce without a pseudo French accent.

Franchising, franchisors and franchisees are three words that for someone looking at self employment can turn them off a wonderful concept before they have even started exploring it. ‘Brand owner’ and ‘licenced partner’ are alternatives that would state the business relationship for all.

Notwithstanding the confusion over what franchising is and in turn the labels we give to parties involved in the business venture, the fact remains that working under a licenced business format doesn’t suit everyone. There are pros and cons for both sides of the arrangement and it is critically important that these points are discussed and overcome if a working relationship is to flourish over time.

One of the most frequent questions I get asked by someone considering buying into a franchise that I represent is: “What’s in it for me?” My reply is simple: “The opportunity to follow a proven system and with hard work the return for their investment is, in most cases, unlimited, compared to a PAYE salary.” In return for ongoing support, innovation in new products and services and the economies of group purchasing, there is a small percentage of fixed fee requested. No apology should be needed, as in most cases for every £1 earned the licenced partner will get, say, 92p and the brand owner 8p.

Let us now consider the pros and cons. While brand owners want and need to attract individuals into their fold to expand and grow as a partnership, they do so with a prerequisite that the licenced partner is suitable, well financed and has the tenacity to succeed. Therefore, if the individual considering a particular franchised business has these attributes they will have an opportunity to enjoy the pros that are splashed all over a franchise prospectus.

Profits
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These pros should include, primarily, the potential to achieve profits based on average performance, not a solitary high flyer that is the exception to the norm. Under a licenced business, the pros are plain to identify, such as a well known name that is already present on the high street, a specific brand that is synonymous with a marketplace or a product that is already supplied in vast quantities to end users. This positive impression will maximise the opportunity for a new fledgling franchisee entering the market in their part of the country.

Any decent franchise will supply goods and services at reasonable prices that are of superior quality and possess a margin that allows the licenced partner to supply them at competitive prices. The business model should provide a system that promotes excellent customer service, which is another positive attribute to maximise success.

These pros are essential, as are the industry experts employed at the franchisor’s head office and those in the field who can assist the licenced partner in establishing and subsequently developing a business in their given area.

Despite the many advantages of franchising, it is not ideal for everyone and there are cons that should be considered. Some people just don’t get the concept of working for themselves while having a ‘big brother’ looking over their shoulder. The ‘interference factor’ is thus a hurdle that many people struggle to overcome, despite the constant reminder and a signed legal agreement stating that the brand owner has to maintain a level of protection for its good name, be it in image terms or perception of value for money and quality products.

Disagreements over what the licence partner does and the brand owner dictates is a regular part of everyday life in the franchise industry. Much of the daily workload for a brand owner involves policing the network and ensuring the operating criteria is being followed.

Managing expectations and, in turn, generating planned turnover is one of the most contentious issues between a brand owner and licenced partner. The fact remains that until a licenced partner opens the doors to their new business - unless there are existing customers who provides instant turnover - nobody really knows what will happen and effort doesn’t always mean instant sales.

A licenced partner will need to continue to work hard throughout the life of their business to ensure a steady flow of new and repeat custom. However, the natural human trait is to sprint at first and slow down all too quickly to a walking pace, instead of adopting a marathon runner’s approach.

Deficit
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The impact of lower than expected sales and running costs can result in a deficit that doesn’t leave any money for the licenced partner, no matter how many times the warning is made to an applicant that they must have enough to cover their financial commitments and a contingency fund for unexpected business costs.

All too often a slower than expected start scuppers a business because it has relied on assumed ‘record sales’ and cash generation to cover the mortgage or school fees. The annoying thing for everyone is that a slow start is common, but if a licenced partner follows the system and utilises the sales techniques they’ve been taught it is usually a matter of phased sales coming in a little later and by that time ahead of the gradual growth forecast.

The final con that needs highlighting is the expectation that all a licenced partner needs to do is open the doors for business and customers will rush in. It is therefore imperative that brand owners reinforce the need to promote the business and proactively target potential customers, instead of sitting back and waiting for them to come to you.

Buying a franchise is not buying a job, but with the right mental approach and drive to succeed the pros really do outweigh the cons.