The term ‘franchisor’ refers to the seller of the franchise and ‘franchisee’ refers to the purchaser of the franchise. A franchise is a business relationship between the franchisor, who has a tried and tested business concept, and yourself who purchases the right to operate a branded business. It will involve a capital investment plus ongoing royalty or management fees based either on sales turnover or as a mark-up on goods supplied for resale by the franchisor.The franchisor will provide initial training in all aspects of the franchise in order to ensure that you are equipped to run the franchise successfully. The franchisor will also provide ongoing assistance and support to you in all aspects of the franchise operation.

The Advantages And Disadvantages Of A Franchise

The Benefits

There are numerous benefits in buying a franchise some of which are:

• You will have the opportunity to purchase a business concept that has already been tried and tested in the market.
• The risks of setting up a franchised business are substantially reduced when compared to establishing a new business in the same market.
• A franchise will provide a brand image that the public will recognise.
• Business premises will all comply with an established interior and exterior design to assist with brand promotion.
• Specifications for the equipment required by the franchise will be clearly identified from the outset.
• Publicity and ongoing marketing can be arranged by the franchisor as part of the contractual agreement.
• Comprehensive training in all aspects of running the business will be given to you by the franchisor, both initially and on an ongoing basis as methods are improved.
• The ‘operations manual’ received as part of the franchise will give standardised procedures for accounting, sales, and stock control.
• The franchisor may be able to provide you with better terms for the centralised bulk purchase of raw materials or goods used by the franchise.
• As the franchisee, you should benefit from the franchisor’s ongoing research and development undertaken to improve the franchised product or service.
• Networking with other franchisees will provide both you and the franchisor with opportunities for review and improvement of the operating procedures.
• The franchise should have a clearly defined geographical area within which the rights of the franchise are protected from other franchises from the same franchisor.

The final advantage of purchasing a franchise, as opposed to starting your own business, relates to raising funding for the venture. Gaining finance to purchase a franchise is generally easier than gaining finance to start a new business. The reason for this is that the franchisor will be better able to provide estimates of the likely sales and costs, thereby giving a more accurate prediction of profit levels.

Most of the high street banks have specialist franchise sections that monitor the ongoing progress of their franchise customers. In this way they build up a picture of the success, or otherwise, of a franchise. Whilst they will not pass on an opinion as to ongoing viability, they will obviously be more prepared to finance a franchise that has a successful history.

Under some circumstances the franchisor may be able to offer assistance with funding. A well-established franchisor will often make arrangements with a particular bank to fund the purchase of a franchise. You, as franchisee, will still have responsibility for the loan, but the involvement of the franchisor may increase the likelihood that the loan will be granted.

If you are having difficulty in obtaining finance for the purchase of a franchise you should perhaps be looking at it more carefully.