Frequently Asked Questions (FAQ’s)
Each and every year Franchise Exhibitions across Europe see hundreds of thousands of visitors, all curious about the concept of franchising.
Below you will find the top 10 must know franchising FAQ’s answered for you – no need to look any further.
- Is franchising successful in Europe?
- Do I need relevant experience of the sector?
- Do I need to know how to run a business?
- Am I safe investing my money into a franchise?
- What types of franchise opportunities are there?
- Is there growth potential in a franchise?
- Will I have make sales to bring in business?
- What exclusivity will I have with my franchise?
- What are the time limits to the develop a franchise?
- Is my franchise legally protected?
It is reported that the Franchise industry is some 45% larger than it was in 1995 in terms of number of Franchised opportunities now operating in Europe.
A typical agreement will outline the franchisees rights to an exclusive area where they can build a business under an existing brand, to maximise profit without taking risk of setting up a new business.
1. Is franchising successful in Europe?
According to the Nat West/bfa UK franchise survey, some 1,025 franchised opportunities opened their doors and began trading last year, just in the UK alone. That’s almost three a day!
The popularity of owning a franchise opportunity just grows and grows each and every year and has done for more than a decade. The Nat West/bfa survey reveals that the industry has grown by 45% compared to 1995 in the number of franchised units.
To date there are more than a quarter of a million franchise opportunities operating in the UK alone. There are currently more than 718 brands offering format franchises compared to 474 in 1995. These franchises opportunities have seen more than £9.1 billion in turn over each year.
Brian Lewis, Former Chairman of the bfa, has predicted that franchising is set to ‘explode’ as awareness of the concept grows throughout Europe, a prediction which is perfectly feasible when you consider that the US sees over half of all retail sales generated through franchising.
2. Do I need relevant experience of the sector?
In general no prior experience is needed, as most franchisors will offer full training on all parts of the business that the franchisee will be required to know.
4Business understands that without proper training their franchisees would find it very difficult to understand the business model which makes the opportunity successful.
A comprehensive training package allows the franchisor a much larger field of choice when looking for a franchisee and enables the franchisor to look for the right person in terms of commitment; enthusiasm and drive, as training can provide the required experience.
3. Do I need to know how to run a business?
Good business acumen would be an advantage, but certainly is not necessary. In the world of franchising we have a saying “In your own business, but not in business on your own”.
Most franchisors will have access to good accountants and lawyers that can help you with the smooth running of your new business. Don’t forget 4Business has done it all before and will help you through it, so there’ll be no nasty surprises.
4Business recognize that they need to assist new franchisees in getting their business off the ground. Our support is funded by the ongoing license fee paid by franchisees. Putting together the business plan, the provision of IT support, area selection, business set up, introducing accountants, lawyers etc, are all part of the service.
Technical advice will be essential for specialist areas and 4Business will be on hand to help and guide franchisees in the right direction.
4. Am I safe investing my money into franchise?
According to VAT registration and DE-registration statistics released in 2005 by the Department of Trade and Industry, the odds of survival for more than three years for a new business start-up in the UK today are less than seven out of ten. This is scary enough, but doesn’t even measure the businesses that actually achieve a profit.
Entrepreneurs that plough business loans or their nest eggs into new businesses will lose out to poor marketing, wrongly identified market place, management mistakes, bad organization, economic conditions – and a number of other pitfalls that litter the road to building a successful business.
However, according to a Survey by the UK franchise Association last year just 1.4 per cent of franchises changed hands due to commercial failure and an additional 0.3 per cent due to disputes.
In short, franchise opportunities are stronger in the marketplace because the franchisor has already built a profitable business model with a proven demand and offer the support to make the franchisee succeed.
5. What types of franchise opportunities are there?
There are three major sectors of franchising: the Food and Beverages industry, the Retail industry and the Services industry. The UK Franchise Directory or National Franchise shows are great places to see the different brands that will be looking for franchisees.
Franchises opportunities can be divided into the following categories:
- Job Franchises, where the franchisee operates the business hands-on;
- Sales and Distribution Franchises, where the franchisee is on the road, selling and/or distributing products in his territory;
- Executive Franchises, where the franchisee runs a one-man, white-collar business;
- Retail Franchises, where the franchisee invests in commercial property, staff and inventory to help operate a shop-unit;
- Investment Franchises, where the franchisee puts up the capital and appoints a manager to run the business;
- Management Franchises, where the franchisee manages a team of operatives.
6. Is there growth potential in a franchise opportunity?
The normal route to national expansion for most companies is usually much less speedier than that of a franchisor that will not need staff and office costs, by expanding through franchisees the franchisor can build a network and build a stronger brand awareness more quickly establishing a dominant position in the marketplace.
A reported 74 per cent of franchisees report turnovers over £50,000 per year, 35 per cent registering at the top end of over a quarter of a million (according to the UK Franchise Survey). A simple Translation is that 79 per cent are reporting profits within their first two years and overall 88 per cent in total are earning an income from their business.
Growth can come from purchasing larger areas, then the franchisee becomes the franchisor this is usually something that will take place once you are accustomed to the work needed to be carried out and the franchisor helping you to develop your business.
7. Will I have make sales to bring in business?
Most franchise opportunities require their franchisees to take responsibility for generating sales for their own businesses. However, there are a number of franchises where the franchisor takes some or all responsibility for winning business.
This would allow the franchisee to concentrate on providing a high quality service. This type of opportunity would come under the term job franchises.
8. What exclusivity will I have with my franchise?
Usually Franchisors divide areas into territories when they are planning out their franchise expansion programme. When the size of the territory is decided upon it will be written on the franchise agreement and both parties will agree to adhere to it.
The important side of choosing an area, is to create an area in size that will produce a fair investment return for the franchisee.
9. What are the time limits to the develop a franchise?
Time Limits will depend on the size of the territory. For example, a typical franchisee will be working with one territory and therefore the time for the business to be set up is really very fast.
On the other hand a growing number of established franchisees look at multiple franchises in order to maximise the ability to develop their businesses growth.
Regional Master Franchises are also becoming more popular and allow the franchisee to sub-franchise – effectively becoming a franchisor themselves and in return allowing them to luxury of receiving the license fee in their area of management.
National Master Franchises are mostly awarded by foreign franchise brands looking for that special person capable of organising others to develop a sub-franchisee network across the entire country.
10. Is my franchise legally protected?
Yes all franchisees will sign a franchise agreement with the franchisor, this will secure the agreed area of which can be operated by the franchisee the agreement will clearly define all the rights of both the franchisor and the franchisee.
A typical agreement will outline the franchisees exclusive rights to market, build a business under the name, profit from and possibly sell sub-franchises under the brand within a given territory.
Franchising is nothing new to lawyers and therefore any good lawyer will be able to advise you on the agreement conditions. A good agreement should protect the franchisee the franchisor and the rights of commercial development.
