113 plain english 29/10/07 18:41 Page 1
Plain English
A guide to franchising
HOW FRANCHISING WORKS FORGET Sales/Distribution Franchise - where the franchisee is on the
FRANCHISING IF road, selling and/or distributing products in the territory and
Franchising is a ‘business marriage’ between an existing
YOU’RE:
where other driver-delivery personnel could be hired to cover
business (the franchisor) and the newcomer to the business
areas as the customer base grows.
ownership (the franchisee):
Arrogant - think you know
best/unwilling to learn
Mobile Servicing (Job) Franchise - where the franchisee with a
THE FRANCHISEE buys licensed rights to clone the whole
Stubborn - won’t follow the
lower level of financial investment buys the right to operate,
business package from the franchisor in a specific territory for franchisor’s system
typically, a man-and-van home-based service / installation /
a specific period, backed by full training and support from the
Unrealistic - underestimate
repair business in areas like cleaning, motor services or
franchisor.
self-employment
maintenance.
THE FRANCHISOR provides a ready-made, established and tested
Under-funded - start
Crossover Effect - Bear in mind that most franchisors now like to
business format including name, corporate power, know-how,
business on a shoestring
view their opportunities as more mature ‘management
training and support services.
Disorganised - bad at man-
management
franchises’. Even those that start as job-type franchises are
THE FRANCHISEE invests capital, time, effort and any relevant
Maverick - unable to work
generally accompanied by encouragement for franchisees to
past experience to create his business, replicated from the
as a team player
aspire to developing a management franchise, whereby they
franchisor’s business formula / system.
Lazy - content to be a
employ operatives and focus more on managing and growing the
business.
THE FRANCHISOR gains a new outlet in a new territory with
passenger
minimum capital investment in setting it up. Complacent - content to
reach a comfort level
THE FRANCHISEE gets a safer, more structured, brand-led way of YOU WILL INVEST:
moving into independent business.
Panicky - unable to cope
under pressure CAPITAL - ie., savings, rollover, redundancy pay, compensation,
THE FRANCHISOR expands his network cost-effectively with your
Unconfident - unable to
inheritance, loans to set up and operate the business in return
investment.
control staff, hire/fire
for access to the franchisor’s systems, know-how, training and
Unsupported - by spouse,
ongoing support
family, partner etc
BASIC TYPES OF FRANCHISES
TIME - ie., living and breathing the business to the exclusion of
Unhealthy - physically
all else, certainly at first so that it builds on a stable foundation
Investment Franchise - where the franchisee puts up substantial
unable to cope
EFFORT - ie., committing to learning, building and sustaining the
funds to capitalise on a high-cost franchise system, and
Defeatist - unable to battle
business, often with unsociable hours and going the extra mile
although retaining overall strategic management, invariably
through adversity
hires others to manage the franchise outlet. Examples are the Greedy - overcharge FAMILY/SPOUSE - ie., they are often expected to assist in running
big hotel and restaurant franchises.
customers/fiddle royalty
the franchise
fees
Management Franchise - where the franchisee controls several
Impressionable - easily
SECURITY - ie., giving up paid employment, unemployment
territories or a region or manages a team of operatives.
misled or misdirected
benefit, company pensions and control over a possibly re-
Examples are van-based franchises run from regional HQs, mortgaged home or savings in favour of borowing commitments,
depots or hubs.
Self-deluding -
overestimating abilities, eg.,
debt servicing and debt chasing
Executive Franchise - where the franchisee runs a one-man sales EXPERIENCE - ie., where relevant / applicable, eg., management,
white-collar business, involved in areas like financial services, Immature - inadequate life- accounting, technical, administrative
personnel, consultancy or project management and where experience
COMPETITIVENESS - ie., you may need to absorb the effects on
premises are not vital in that work tends to be taken to client
Introverted - unable to
your margins of tied supplies, mark-ups, royalties, marketing and
premises. Examples would be VAT and cost control consultancy communicate and mix
other percent levies
franchises.
Short-sighted - failing to
Retail Franchise - where the franchisee makes a significant
take a long-term view
FREEDOM - ie., unlike a self-start business, you will be limited by
investment in commercial property, costly equipment and staff
Over-optimistic - expecting
a contractual but constructive relationship with the franchisor,
to help operate a high-yield business system which can often be
too much
especially regarding work methodology, operating procedures,
sold at a profit should the franchisee wish to retire and
Impatient - unwilling to
maintenance of quality standards, supervision, monitoring,
capitalise on the investment. Unlike the investment franchise,
wait for payback
foregoing the right to conduct a similar business of your own
owner-operators are the norm here. Examples here are high
Extravagant - spending
devising and being restricted in choice of buyers for your
street fashion and hi-fi chains.
early turnover on luxuries
business when you want to sell it on to realise your investment
Impetuous - riskily ignoring
or simply to move on to pursue something else
professional advice
©2007 The Franchise Magazine 113
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