SHOULD I BECOME A FRANCHISEE?
Starting a business under a tried and tested franchise could be the best idea you have ever had, but for a small number of unfortunates, it has turned into a nightmare. They have only themselves to blame. Setting up a business of your own, regardless of whether you start it from scratch or acquire a franchise, is a serious undertaking. It will have long-term consequences for you and your loved ones and should be carefully thought through. The following guidelines will help you do just that:
- Entrepreneurship is not an exact science. There is no formal test that can predict with certainty who will succeed in business, although it appears that most entrepreneurs have certain character traits in common. The presence of most of these will give you a head start.
- Most of the characteristics that define an entrepreneur can be acquired, but this tends to be a lengthy process, requiring dedication and self-discipline.
- There are strong similarities between the desirable character traits of independent entrepreneurs and franchisees, yet some of the prerequisites for success as a franchisee are quite different.
- At the outset, you should seek answers to two important questions, namely:
Am I likely to make a successful entrepreneur?
How can I be sure that becoming a franchisee is what I really want to do?
Only you can answer these questions, and realistic self-assessment is the key. What should be foremost in your mind is the fact that starting a business is a process, not an event, so don’t rush it!
THE ROLE OF THE FRANCHISOR
The franchisor is the originator of the concept. He or she has established a profitable business and operated it for some time. During this period, operating efficiencies have been maximised and systems and procedures have been documented. The owner feels that the business is now ready for expansion. Instead of setting up branches, a step that would require a hefty injection of capital and create management problems as well, the decision is taken to franchise the business. This means that the owner licenses a third party, to be known as the franchisee, to exploit the business concept for mutual benefit.
The franchisor retains ownership of the brand and receives initial and ongoing payments from the franchisee and all other franchisees in the network. To maximise the profitability of the network, the franchisor will undertake national marketing and advertising campaigns, negotiate favourable deals with suppliers on behalf of the network and offer training and support. The franchisor will also scan the market for possible changes and develop products and services that maintain the network at the forefront of its industry sector. To protect the good name of the brand, the franchisor will exercise quality control over the activities of all franchisees. This is in the interests of everyone involved, and non-negotiable.
THE ROLE OF THE FRANCHISEE
Rather than starting a business from scratch and making many of the mistakes that come from inexperience, an individual decides to purchase a franchise. The franchisee makes an investment from own resources and owns the business outright, but is contractually bound to operate it in keeping with the franchisor’s systems and procedures.
Initial and ongoing training, the use of a well-established brand, access to a detailed operations and procedures manual, assistance from the franchisor’s support staff and access to bulk advertising and purchasing deals are just some of the advantages a franchisee of a bona fide franchise operation can expect to gain.
It can be said with confidence that a bona fide franchise, entered into by the right partners for the right reasons, creates a platform for a classic win-win scenario.
REGULATORY FRAMEWORK
As matters stand, the term “franchising” has no legally binding definition, leaving franchisors some leeway in compiling their franchise packages. This is why it is so important to ascertain early on what a specific franchise package offers. The most common franchise formats are:
Product franchise.
The franchisor offers access to an established brand and a system, but does not involve himself or herself to any great extent in the day-to-day operation of the franchisee’s business.
Business format franchise.
This is the most widely used format and is highly successful. It offers the franchisee a comprehensive package of initial and ongoing support services that places the franchisee on an equal footing with large corporations; it therefore makes business success much more predictable.
(NB TAKE NOTE THAT THIS IS OUR FRANCHISE FORMAT)
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