Franchising basics – the pros and cons

Franchising is a very specific business structure that is becoming increasingly popular. It is easiest to think of franchising as a kind of licensing. It allows an individual to run a company of their own, but using another company’s brand name, trademarks and suppliers.

There are quite a few familiar examples of franchises such as Burger King and KFC. In fact, the franchising concept and proven system is often used for fast food restaurants. This means that they are not directly owned by the company whose logo is over the door, but are actually run by independent owners under a franchise agreement.

But great British traditions, from doorstep milk deliveries to public houses, are often also run on a franchise agreement – and in fact, pubs were among the first-ever franchises in the UK.

Back in the 18th century, the breweries decided to help publicans with the cost of keeping their establishment open, in return for exclusive supply contracts; this was effectively a forerunner to modern-day franchising.

Some of the best-known examples of successful franchise brands include: Subway (being one of the most popular franchises with over 44,000 branches), McDonald’s, Kumon (after-school teaching centres), Toni & Guy (hairdressers), Prontaprint, and TaxAssist Accountants.

Franchising – Pros

• Franchising is a kind of middle ground between being employed and being truly independent – you get a certain amount of autonomy, but with the advantage of a recognisable brand name, often with an existing stable supply chain and business model.
• The Intellectual Property Office points out that that one of the main benefits of joining a franchise is that “the brand, trade marks, designs, have already been protected and established in the marketplace.”
• It may be easier to secure start-up funding from your bank if you decide to become a franchisee. Financial services providers like HSBC will often lend up to half of the cost of setting up a new franchise, or up to 70% of the purchase price of an existing successful franchise.
• In many cases, the franchisor will already have various financing options in place, which may be an easier route than using a high street lender.

In all of these cases there is a common advantage to franchising, and that is its track record – people have been making a success of franchised businesses for centuries in the UK, and some of the most recognisable high-street brands operate on a franchise structure.

Franchising – Cons

• The list of cons arises from much the same reasons as the list of pros, so don’t be under the illusion that a franchise agreement allows you to walk straight into one of the world’s biggest brands without needing any effort on your own part.
• First of all, no big company will hand you a franchise agreement that makes it hard on them and easy on you, so make sure you check your contract very carefully before signing it.
• You will be ultimately be responsible for the success or failure of your particular franchise. That means you should still feel the pressure of being ‘where the buck stops’ – don’t view franchising as an easy ride.
• Promotions and marketing activities may be limited in scope, competing franchises may be agreed close to your own, and the more successful you are, the more you are likely to have to pay to the franchisor.
• The effect of all of this from the customer angle is that you will need to hit the ground running; people don’t appreciate teething problems from a new franchise, which they will most likely view as being just a new branch of an existing big-brand company.

But if you are confident of being able to keep on top of things from day one, without crumbling under the pressure, there is no reason why any of these issues should prevent you from using franchising as a way to launch a company of your own.

Further Information

Buying into a franchise business is not in itself a guarantee of success. You will need all the energy, hard work and commitment required of any new business to ensure its success.

Here are some useful links to explore the world of franchising. These can help you further decide if franchising is a viable option for you.

• You can check out our franchise guide for beginners, as well as our franchising section.
• The British Franchise Association (BFA) – a wealth of resources and advice.
• Some useful advice at Franchise Info here, and access to a variety of events and a well-stocked knowledge base.
• Browse the ‘Top 500’ list of franchised brands at Franchise Direct.

More on types of franchising and franchising for beginners.