Pip Wilkins

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Which Franchise to Buy – Established Name or New Kid on the Block?

Published on
Pip Wilkins
Pip Wilkins
Chief Executive of the
British Franchise Association (bfa)

There are currently more than 900 brands using a franchise model in the UK, and if you ask the average person on the street to name some then they’ll most likely come out with the usual suspects – McDonald’s, Subway, Domino’s and so on.

However, those global giants make up only a fraction of the options available to prospective franchisees.

Anyone who has begun to delve into what’s on offer will soon find a multitude of brands large and small with tempting and very real business propositions.

Some of those propositions are other household names that are not typically known as franchises – perhaps Clarks, Thorntons, O2 – and some are much smaller businesses, perhaps just starting out in franchising or beginning to expand from their local marketplace. And, of course, everything in between!

What does this mean for you, the prospective franchisee?

There are very clear advantages to both the familiar, established brand as well as the new kid on the block when assessing what the right opportunity is for you. Like so many considerations when you’re doing your research, the type of personality you are and the lifestyle you want to lead are critical in your decision-making.

Big Business

Franchisees of renowned national and international brands benefit from significant consumer knowledge of their products and services; often with brand loyalty and expectations already engrained within a core base of customers that keep them coming back time and again.

Most franchises at this stage have national marketing campaigns in place and your brand will be seen on a regular basis.

A larger network of franchisees also means there should be vast quantities of expertise to call on in addition to head office resources, including from franchisees at every stage of development and size. Those franchisees will also be able to offer you, the prospect, an abundance of historical data as to the expectations of your own business and its potential profitability.

Head Office back-up should be plentiful, with dedicated business development staff and systems, and the proven infrastructure to support franchised outlets up and down the UK.

And the operational structures will be quite rigidly controlled – while it’s true to say that the Big Mac was the invention of a franchisee, brands the size of McDonald’s are by now very successful at determining what works for them (and what doesn’t), and therefore you’re going to have to follow the franchise system very closely, with less day-to-day entrepreneurial freedom.

Still, when that system has been shown to work time and again, that’s exactly what you are paying for!

Those are some of the reasons why renowned brands come at a premium price. As a general rule, the most established brands will have higher start-up costs precisely because you’re buying into a more proven model, and because the turnover potential can be highly lucrative with less perceived risk involved.

Good Things Come in Small Packages

A brand newer to the market and/or to franchising comes with very different considerations. There is little or no historical precedence when a business begins franchising as to what may be achieved by a franchisee, so accurate forecasting and enormous due diligence is critical in assessing the opportunity.

With few or no trading franchisees to check on aspects such as turnover potential and the support offered by the franchisor, your research and your instincts are vital.

Usually, you’ll be paying a lower fee to join as the franchise tries to attract those early-adopters that can propel it forwards.

If you find the right opportunity, that can mean significant reward for taking that risk later down the line when the brand under which you operate suddenly becomes the next big thing in its marketplace.

And on a personal growth level, there are also opportunities to branch out – whether through buying a vacant neighbouring territory to expand your own business or by becoming an experienced mentor to the next wave of franchisees.

An established brand already has significant infrastructure in place, whereas in a newer brand you might get involved in shaping the network, and will usually be dealing with the business owner(s) in the beginning at least, giving a personal touch that some find appealing.

It’s certainly a more risky proposition, but if you’re willing to take that risk then the rewards are potentially substantial too. Because they’re newer to the model and the market, in an emerging brand the early franchisees in the network are usually instrumental in shaping the business as it moves forwards and grows. That means more freedom for you to input your own ideas – but remember, they’ll still have to fit within the overall business model!

At the bfa we have a category called ‘Provisionally Listed’ to distinguish those brands that are newer to the sector. That means that the business has demonstrated a commitment to ethical franchising, taken the right advice and has a proven pilot system in place. Those are important signs you should be looking out for in a newer franchise brand to help you identify the good from the rest.

At its heart, the choice of known versus new franchisor comes down to a risk versus reward equation; how comfortable you are with each on a personal level is important to establish.

Also remember: though they may be inherently less risky, there are no guarantees even with the bigger brands – dedication, hard work, tenacity and a strong will are vital to your success in franchising, no matter the size of brand you’re operating under.

For more information on any aspect of franchising visit www.thebfa.org.

ABOUT PIP

Pip Wilkins is the Chief Executive of the British Franchise Association (bfa). With 18 years’ experience in the franchise sector, Pip has worked her way up within the Association, gaining insight from all areas of the business and the franchise industry. She is well-known and highly regarded in franchising for her dedication and depth of knowledge.

Pip regularly speaks at conferences and seminars both domestically and internationally, as well as writing on franchising matters for national, local and franchising trade press. Pip is also a judge for the annual bfa HSBC Franchisor and Franchisee of the Year Awards.

Pip represents the UK at both the European Franchise Federation (EFF) and World Franchise Council (WFC). The bfa has grown to be one of the largest franchise associations in Europe, and one of the most successful associations in the world.

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Back to Work after a Divorce – Buying a Franchise: Top 10 Checklist

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Pip Wilkins
Pip Wilkins
Chief Executive of the British Franchise Association (bfa)

The number one priority for any prospective franchisee who has found a brand, or brands, they are interested in potentially joining, is to make sure that the franchise is what it says it is.

You’ll receive all sorts of impressive marketing collateral and promises when you’re speaking with a franchise about investing, and it’s your job above all else to retain a cool head, steady hand and clarity of mind.

Ultimately, you’re looking to find out that what you’re being told is mirrored in reality.

So how exactly can you do that? With the mantra of research, research, research running through everything you do in your due diligence, here are 10 key areas to focus on:

  • Use the British Franchise Association (bfa): the bfa accredits franchisors using a stringent set of criteria which reviews their systems, franchisee support and disclosure of information in line with the European Code of Ethics for Franchising. It is the not-for-profit trade association for UK franchising that exists to help people in exactly your position with objective, unbiased information. Visit the bfa’s website, thebfa.org, for advice, tips and 50 questions to ask a franchisor, as well as a list of all accredited member franchisors and advisers.
  • Take the Prospect Franchisee Certificate: the Prospect Franchisee Certificate (PFC) is the first course of its kind, created to deliver a comprehensive overview of what it takes to succeed in the UK’s £15bn franchise sector where individuals run their own business under an established brand. The modular, video-based course provides insights into everything from evaluating franchise opportunities to business management, financial understanding and legal considerations. Best of all, it’s completely free and can be taken on any device, anywhere with an internet connection, either in a single day or in bite-sized chunks.
  • Work out what can you afford: levels of investment range greatly. It’s important to find out what the total start-up fee typically is, not just the franchise fee. Assess and understand from the beginning of your process what you can afford to invest and how much you are prepared to borrow from a bank or family – and remember to consider working capital.
  • Speak to existing franchisees in the network: you want an extensive list to choose from, not just a few that the franchisor provides you with. Remember that in this case they may be cherry picked to be the ones the franchisor wants you to know about. Speak to both successful and any less successful franchisees to give you a rounded view. Existing franchisees can tell you what the franchisor’s support is like; if the turnover/profit projections are realistic; and many other things from the coalface of the business: essentially, check that what you’re being told is reflected in their experiences.
  • Understand the business: make sure you understand all the business operations and what you’ll be doing on a daily basis, as well as the lifestyle it will give you. You may choose a field you’re experienced in, or one that you’re passionate about – but think carefully about what you want to do!
  • Consider the training: be sure that the training provided, both initially to get you up and running and on an ongoing basis to help your business grow, is sufficient for you to be able to gain the skills required to operate the business successfully.
  • Consider ongoing fees: franchisors charge a management service (royalty) fee, which will usually be collected either as a percentage of monthly turnover, or through the supply of the raw materials that you need to operate. Make sure you understand the structure and level of fees, and what you get in return; these fees fund the ongoing support that you receive and the future development of the business.
  • Talk to head office staff: don’t underestimate the importance of meeting the people involved at head office, finding out who you would be in contact with and what their experience is. You need to have a good, ongoing relationship with these people, so you need to ensure that they are the sort of people you can work with on a regular basis.
  • Get the franchise agreement checked by a franchise lawyer: you’re about to sign a legally binding contract, usually for 5 years at a time. Getting it reviewed, to know exactly what you’re signing up for, is essential! Franchise lawyers can be found on the bfa website.
  • Selection process: if the franchisor doesn’t appear selective about who they recruit, walk away. You want to see that they are stringent in their process, not just letting anyone and everyone join the network whose brand you will be trading under. Investing in a franchise should be a two-way recruitment process.
  • Finally, take your time! Make sure you assess and re-assess everything as part of your research before you fall in love with a concept and a dream. You’re parting with your hard-earned money and making a commitment for several years (usually five at a time), so it’s essential to be certain rather than making an expensive mistake. A good franchisor won’t pressure you into a decision, they understand the level of undertaking required and want serious people to join their network. If you feel rushed, walk away.

ABOUT PIP

Pip Wilkins is the Chief Executive of the British Franchise Association (bfa). With 18 years’ experience in the franchise sector, Pip has worked her way up within the Association, gaining insight from all areas of the business and the franchise industry. She is well-known and highly regarded in franchising for her dedication and depth of knowledge.

Pip regularly speaks at conferences and seminars both domestically and internationally, as well as writing on franchising matters for national, local and franchising trade press. Pip is also a judge for the annual bfa HSBC Franchisor and Franchisee of the Year Awards.

Pip represents the UK at both the European Franchise Federation (EFF) and World Franchise Council (WFC). The bfa has grown to be one of the largest franchise associations in Europe, and one of the most successful associations in the world.

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How does franchising work

How does Franchising Work?

Published on
Pip Wilkins
Pip Wilkins QFP
bfa’s Head of Operations

The franchise industry can sometimes be seen as one of mystery to many.

‘Franchising’ is a term misused on a regular basis and one that many therefore misunderstand.

So what is franchising, and what does it mean to you as a business owner?

Business format franchising can be explained as the granting of a license by one person (the franchisor) to another (the franchisee), which entitles the franchisee to operate their own business under the trademark, brand and systems of the franchisor for a predetermined period of time.

In return for initial and ongoing fees, the franchisee receives a comprehensive package of support that comprises all the elements necessary for a previously untrained person to establish and run their business, as well as continuing assistance for the length of the franchise agreement; this is the legal contract determining the rights, duration and other elements of the relationship between the parties, and is signed prior to the purchase of a franchise.

That provision of ongoing support is a vital element.

Whilst the franchisee is the owner of their business, it is important to bear in mind that it is the franchisor’s system and brand that the franchisee is operating under.

Ongoing dialogue between franchisor and franchisee is crucial therefore in contributing to the success of each individual franchise unit, and, consequently, the franchise network as a whole.

To examine how the franchise model works, it’s worth noting what makes a business franchisable. There are three core elements:

  1. The business needs to be have been proven to work – not just the idea on paper or in someone’s head – with evidence that the product or service is saleable, and at a level of profit that will sustain a franchised network
  2. It needs to be transferable, i.e. run in multiple locations by multiple independent operators using the same system, brand and quality
  3. It must be teachable, often to people with no experience in the industry previously; there’s little point in franchising a business that only 3 people in the world can replicate!

This first point is especially salient when assessing franchise opportunities; franchising is based on proven systems, not the selling of a concept, and at the least a pilot operation should have been in operation for 12 months.

This way, the franchisor has ironed out early difficulties, honed the system that they are looking to sell, and satisfied all three points above for prospective franchisees.

Financial Close-Up

When investing in a brand, a franchisee should expect to pay an initial ‘franchise fee’ for the right to trade under the brand name for a set length of time.

The franchise fee varies widely according to how established and renowned the business name is, and also depends on what it includes – some franchises offer everything needed to set up and trade within this fee, while others will require further expenditure (such as for a vehicle or shop premises).

Then, ongoing fees will be payable to the franchisor. Most commonly this is a percentage of monthly turnover, though some franchise models may use mark-ups on products or raw materials brought (contractually) from the franchisor; and others have a flat fee, especially where the franchisee commonly trades in cash (a weight loss club for example).

In addition there may also be a separate marketing levy applied to the franchisee, but this money must be kept in separate accounts and used only for marketing for the benefit of the network.

These monthly fees give the franchisee the right to call on his or her franchisor for assistance on a continuing basis. For some this might be help with administering the business, while for others it may be assistance with sales or some other operational aspect.

This synergy between the two parties underpins the franchise model, and is its basis for success – better, more profitable franchisee businesses provide better returns to the franchisor, and therefore it’s in everybody’s interest to make each unit as successful as possible.

Time and again, 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. It continues to be a successful and well respected business model.

For more information on any aspect of franchising visit www.thebfa.org.

About Pip

Pip Wilkins is the Chief Executive of the British Franchise Association (bfa). With 18 years’ experience in the franchise sector, Pip has worked her way up within the Association, gaining insight from all areas of the business and the franchise industry. She is well-known and highly regarded in franchising for her dedication and depth of knowledge.

Pip regularly speaks at conferences and seminars both domestically and internationally, as well as writing on franchising matters for national, local and franchising trade press. Pip is also a judge for the annual bfa HSBC Franchisor and Franchisee of the Year Awards.

Pip represents the UK at both the European Franchise Federation (EFF) and World Franchise Council (WFC). The bfa has grown to be one of the largest franchise associations in Europe, and one of the most successful associations in the world.

You might be interested in