Glance down any big High Street and you will spot the names of businesses run as franchises. McDonalds, Budgens Stores, Clarks Shoes, Dyno-Rod and Coffee Republic are among the best-known, but there are nearly 800 others in the UK.
The word 'franchising' is used for a variety of different business arrangements. The most common form is when a business (the franchisor) grants a licence to a person (the franchisee) to use their idea. The franchisee sells their product or service and trades under the franchisor's trade mark or name. The franchisor usually offers help, for example, in training, sales support and advertising. In return the franchisee pays a fee upfront and then a percentage of sales.
A survey carried out last year by NatWest and the British Franchise Association (BFA) found that the average turnover of a franchised business was £323,000 and that 93 per cent of franchisees said their business was profitable.
Around 371,600 people work in a franchised business in the UK. Franchises cover a huge range of products and services from Barking Mad, home-from-home petcare, to Cookerburra Oven Cleaning.
Multi-level marketing is sometimes described as franchising. This is when a self-employed distributor sells goods for the maker in return for commission on sales and sales made by distributors they recruit. But beware - some of these types of schemes are illegal (see the Department for Business, Enterprise and Regulatory Reform).
Start-up with fewer risks
The main attraction of a franchise is that it is a comparatively risk-free way to launch an idea. If you want to run your own business but don't have a business concept, franchising may be for you. Other advantages include:
The business already has a track record and any teething problems should already have been sorted out;
The suppliers are in place and customers identified;
You can use recognisable brand names and benefit from advertising campaigns;
The best franshisors offer training - particularly in sales;
Banks are usually more willing to lend to a business that is part of an established franchise;
Your franchisor should be able to pass on discounts such as bulk-buys;
The cost. This includes: buying the franchise, paying regular royalties or a management fee and possibly buying stock, paying for training and making a contribution to marketing;
Restrictions on how you can run the business may cramp your entrepreneurial flair or prevent you from adapting to local conditions;
There is always the risk that the franchisor might go bust or that other franchisees might damage the business's reputation;
It can be difficult to sell the franchise as the franchisor must usually give approval.
Choosing a franchise
There are several ways of finding a franchise to suit you. The BFA runs seminars and FranInfo includes details of franchising exhibitions. The national press, Dalton's Weekly and Franchise World each offer franchises for sale but the internet is now the most popular way of finding a franchise.
Check whether the franchisor is a member of the BFA. This will at least mean it has been examined to see whether it meets certain ethical criteria. Ask the franchisor whether they have lost any franchisees.
Talk to a range of franchisees at different stages in their relationship - not just ones the franchisor has suggested.
Draw up a business plan to help you assess the franchise's strengths and weaknesses. You will need a plan to raise money to buy the franchise, invest in premises, equipment and stock.
Think carefully about the type of business that will suit your personality and lifestyle. Are you prepared to work weekends, do you mind dealing directly with the public, what particular skills can you offer, how much money can you invest and how quickly do you need to see returns?
The whichfranchise website offers a simple test that will give you some idea of the type of business that might suit you.
Franchise agreements typically last between five to ten years. Take advice from your local bank or building society - many of which have franchising departments, and from your local Businesslink, chamber of commerce, accountant or solicitor before taking the plunge.
Department for Business, Enterprise and Regulatory Reform: http://www.berr.gov.uk