'Franchising shorts' - Part 1 of 3

1.     What is franchising?

2.     How do I get funding to buy into a franchise?

3.     What do franchisors look for in a prospective franchisee?

WHAT IS FRANCHISING?

In my view franchising is neither an industry in its own right nor in fact a business but rather one of the fastest and most consistently successful methods for distributing products and services to the marketplace.

According to latest NatWest/bfa franchising survey franchising employs more people than the army, navy and air force combined – over 500,000!!

Moreover the franchise sector enjoys a market turnover in excess of £12.4 billion* p.a. (* source: 2012 NatWest/bfa franchising survey).

Franchising is a crazy mixture of conformity and individuality and combines the very best elements of big business and small operation. To be successful a franchisee must comply with the franchise system and yet such compliances will enable the franchisee to achieve a level of self-fulfillment.

The phrase 'in business for yourself, but not by yourself' really does capture the essence of franchising.

If you simply opened your own business you would be responsible for everything but in a franchise the franchisor offers you experience, knowhow, proven operation methods, marketing tools, sales training, technical guidance as well as corporate identity, trademarks and the brand.

A quote from the book 'Growing Pains' accurately differentiates between running your own 'independent' business and a franchise and makes the point that running your own business is:

'about as easy as navigating uncharted waters in a leaking rowing boat with an inexperienced crew while surrounded by a school of sharks.

The crew might be glad to know that others before them have made the voyage successfully and to hear (and learn) of the lessons that other voyagers learned in the process'

The essence of franchising is that it is a licence to operate somebody else's proven business system.

The magic of franchising is that it combines local knowledge, dedication, an individuals' own skill set and their ambition with the intellect, business systems, head office resources and drive of a high profile national (or international) organization.

HOW DO I GET FUNDING TO BUY INTO A FRANCHISE?

'A number of the high street banks have specialist and experienced franchise departments and they should be on your short list of people to approach - always see more than one and compare interest rates; payback period; free banking terms; capital holiday and secured / unsecured options Additionally though, you should give thought to other forms of funding - you would be amazed by how much you will be able to raise from your own arena - extending your mortgage; cashing in investments; loan from family members and so forth Furthermore there are other loan companies who will also look at franchising (we currently have one Franchise Owner who funds through a lease financing group) Whichever route you choose please ensure that you are comfortable with the lender; that you have compared at least two lenders and most importantly that you neither over-extending yourself nor under-capitalise the business'

WHAT DO FRANCHISORS LOOK FOR IN A PROSPECTIVE FRANCHISEE?

'Franchising is a powerful blend of the best elements of 'big' and 'small' business. It is an effective mixture of conformity and individuality allowing the franchisee the opportunity to build a genuine business and a capital asset whilst diligently following the proven systems laid down by the Franchisor.

Good franchising is a marriage of two parties with different skill sets but with a common purpose - business development.

To this end Franchisors look for high work ethic, ambition, people skills (good communicators), willingness to follow a proven system and good organisational ability - plus specific skills that relate to their own particular business/industry - these may include IT, sales, marketing, education and finance.

However, in my experience the specific skills are less important than work ethic, people skills and organisational ability - as the Franchisor will be training the specific skills required to run their system - if a franchisee doesn't have the right 'ethos' then no matter how good the specific skill training they will almost certainly be unsuitable for life as a franchisee'