1
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved
Franchise Direct's Pocket Guide to Franchising
Thank you reading our pocket guide to franchising!
The purpose of the guide is to provide an overview
of franchising and help you as a prospective franchise
buyer. We hope you find it to be a great resource as
you explore the possibilities that franchising has to offer.
The information contained in this publication is for
informational purposes and general guidance only.
Every effort has been made to ensure that its
contents are accurate.
Please note that no business method or industry
sector can guarantee success, and franchising is
no exception. The information contained in this
booklet is designed to assist you in asking the right
questions and seeking the right advice to make the
right choice for you. However, ultimately, it is your
investment that is at stake.
The information and guidance contained, or referred to,
in this publication are generic and, in likelihood, does
not apply to all franchise systems. The specific
circumstances of individual cases may differ, as may the
correct course of action to take in those specific
circumstances.
Franchise Direct cannot accept responsibility for
decisions taken as a result of the information contained
within this booklet. For any investment listed on
Franchise Direct or elsewhere, it is up to the prospective
buyer and user to thoroughly investigate any listing or
company, obtain the appropriate disclosure documents,
and seek expert consultation prior to making any
investment decisions.
All contents of this booklet are the copyright of Franchise Direct.
All rights reserved. Any reproduction of any content without permission is strictly prohibited.
1
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved
Table of Contents
A Look at the Popularity of Franchising.......................................................................................................3
Steps to Owning a Franchise........................................................................................................................4
Franchising 101............................................................................................................................................5
Franchises vs. Business Opportunities.........................................................................................................6
Why Buy A Franchise?.................................................................................................................................7
Assessing Yourself........................................................................................................................................8
Finding Franchise Opportunities..................................................................................................................9
Franchise Costs..........................................................................................................................................10
Initial Investment Costs.........................................................................................................10
Ongoing Costs........................................................................................................................11
Financing Your Franchise...........................................................................................................................12
Tips for a Successful Meeting with Lenders...............................................................................................13
Signing the Franchise Agreement..............................................................................................................14
Minorities and Franchising........................................................................................................................15
Women and Franchising............................................................................................................................15
Retirees and Franchising............................................................................................................................16
Home-based Franchises.............................................................................................................................17
Part-time Franchising.................................................................................................................................18
Alternative Modes of Franchising..............................................................................................................19
Final Advice................................................................................................................................................21
Common Franchise Terms..........................................................................................................................22
2
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved
A Look at the Popularity of Franchising
Nationally
Today, many of the UK’s popular brands have franchising at their core. It is estimated that there is
approximately 1,000 franchisors operating within the UK. From big US franchisors like Subway and
McDonalds to smaller British headed franchises like Greene King pubs, the industry is continuing to grow
as more businesses adopt the franchise model. The estimated annual turnover of the business format
franchise sector is £12.4 billion (£11.8bn in 2009). It is calculated that some 521,000 people are directly
employed in the franchising sector, an all time high, according to the 2011 Natwest bfa Franchise Survey.
With statistics like these, it’s not hard to see why numerous business leaders and government officials
view franchising as one of the top ways to promote economic recovery through its job creation potential.
So why is franchising such a popular business model? Part of the answer lies in the advantages gained
by both parties of the franchise agreement.
For the franchisor, franchising is a way to economically expand compared to adding additional companyowned outlets because the franchisee is responsible for a great deal of the financial investment. On the
other side, by investing in a franchise, a franchisee gains the advantage of the knowledge and
established systems that the franchisor is already entirely familiar with. In addition, the franchisee will
also be provided training and support from the franchisor.
Abroad
Going international is very attractive for franchisors because approximately 95 percent of potential
consumers in the world are outside of the United States.
Fifteen years ago, few franchisors beyond the large-scale
ones were operating internationally. Nowadays, 32 percent
of the franchise units operated by the top 200 franchisors in
the United States are outside of the US. That number
represents a 33 percent jump in the number of international
units operated by those franchisors in the past 10 years.
Franchise businesses have quite a bit to offer emerging
markets because they are designed to be replicated. Thus,
they require less experienced entrepreneurs and provide
business-learning opportunities within a support structure.
All of this can help emerging market countries further
develop their economies. Additionally, within emerging
markets there are hopeful entrepreneurs that are generally
eager to learn business principles through the methods and
procedures franchisors have to offer.
Organisations such as the International Franchise Association and British Franchise Association offer
many resources to franchisors who seek to operate internationally.
3
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved
Steps to Owning a Franchise
Below are 10 steps that provide a general overview of the steps involved on the path to franchise
ownership:
1. Gain a deeper understanding of franchising by researching and familiarising yourself with
franchising as a way of doing business.
2. Know what your own financial situation and objectives are to determine if franchise ownership is
a workable option for you.
3. Examine your own motives, temperament, lifestyle preferences, health, family obligations, likes
and dislikes to be sure you are realistic about undertaking a particular type of business.
4. Look for franchises that match your requirements and preferences, and then compare several
similar opportunities to narrow down your choices. Talk with other franchisees to get a hands-on
practical viewpoint on the pros and cons of the business.
5. Establish a business relationship with an accountant to review your finances, and a solicitor to
review the legal obligations involved in franchising.
6. Contact the franchisor and request comprehensive details about the franchise. Carefully
examine this with your accountant and solicitor to assess the business proposition and its
earning
potential.
7. Find an appropriate location based on your target market, the competition and capability to
meet any site requirements.
8. Do the research on the industry, the market segment and competition in your specific area.
9. Write a credible business plan to present to the franchisor and potential financial lenders.
10. Carefully review the Franchise Agreement with your accountant and solicitor to ensure it
matches the original information you recieved. Make sure you understand all the terms, and see if
any of the terms can be altered and made more favourable for you as the franchisee.
4
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved
Franchising 101
The modern-day concept of franchising originated in the 1850s with Isaac Singer seeking to distribute his
sewing machines outside of his immediate area. He also wanted to provide training to customers on the
proper way of using them. As a result, he began selling licenses to entrepreneurs in different parts of
the country – the predecessor of the current franchise agreement. Since then franchising has grown into
a prominent feature of the American business landscape.
Franchising can be defined in many different ways. For our purposes, we will use the definition for a
franchise provided by the International Franchise Association (IFA), which is:
Franchising can be described as a pooling of resources and capabilities. The franchisor contributes the
know-how and experience while the franchisee contributes the supplementary capital investment,
motivated effort and operating experience in a variety of markets. Franchising is a comprehensive
business relationship, not just a buyer-seller relationship. There is considerable interdependence
between the franchisor and the franchisee.
One of the most widely held misconceptions about the franchising industry is that it’s dominated by
companies with large operations. While, it’s true that the most popular franchise businesses such as
McDonald’s and Subway have outgrown their humble beginnings and are now huge entities – operating
thousands of units in numerous countries – the vast majority of franchise businesses are truly small
businesses, with most having fewer than 100 units. As a matter of fact, even the
large-scale franchise operators are made up of smaller master franchisees who own
several outlets individually, along with true small business owners who own one, or
just a few, franchised businesses. Essentially, franchising is a time-proven pathway
for small business development.
An additional attribute of franchising is that it’s extremely diverse. Despite its
association with fast food, franchising is not confined to a narrow range of business
segments. Name an industry and it’s likely there’s a franchise in it.
5
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved
Franchises vs. Business Opportunities
Business opportunities and franchises are two ways to start a business without having to start from
scratch. While they are similar, they have distinct differences that should be acknowledged.
Business Opportunities
A business opportunity is the sale or lease of any product, service, equipment, etc. that will enable the
purchaser to begin a business. Business opportunities cover a broad spectrum of careers, and include
the following:
●
●
●
●
Turnkey Operations
Distributorships
Dealers
Network/Multi-level Marketing
●
●
●
●
Trademark/Product Licenses
Rack Jobbers
Vending Machine Routes
Work from Home Opportunities
With the purchase of a business opportunity, the buyer owns the business outright and can customise
virtually all aspects of the business to their tastes. When an entrepreneur contacts an entity selling a
business opportunity, they are contracting with that licenser for a business system including training,
equipment or a service method that the licenser has cultivated and made profitable. Traditionally, once
the purchase is finalised, and training – if applicable – is completed, the relationship is over.
Franchises
A franchise is defined as the right or license granted by a company (franchisor) to an individual or group
(franchisee) to market its products or services in a specific territory.
Three common types of franchises are:



Product: The franchisor grants the franchisee permission to sell/distribute a product using their
logo, trademark and trade name.
Manufacturing: The franchisor permits the franchisee to manufacture their products (i.e. food)
and sell them using their trademark and name.
Business Format: Probably the most popular form of franchising. The franchisor licenses their
brand to a franchisee for use with a predetermined way of conducting business.
When the purchase of a franchise is made, the purchaser is required to comply with strict guidelines and
rules regarding the operation of the business. These guidelines are in place to protect others within the
system and maintain brand consistency. And unlike most business opportunities, costs paid to the
franchisor don’t end with the initial sale. In exchange for these payments, the franchisee will receive
continued support, such as marketing assistance and technical support.
6
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved
Picking the Right One for You
Figuring out what kind of entrepreneur you are and what you’re looking for is important for deciding
which kind of business you should pursue. Both are good for potential business owners that don’t have a
unique product or service to bring to the marketplace, but still want to run a business. The big
differentiator is how much support you want. If you’re simply looking for a jumpstart and desire more
flexibility, a business opportunity is probably the route for you. If you’re looking for consistent support,
and can handle restriction in the procedures of your business, a franchise might be the path for you.
Why Buy A Franchise?
Many people want to be their own boss, but don’t want the task of reinventing the wheel. In
franchising, someone has already done the work establishing the business, and has ironed out the
wrinkles. Here are some common benefits of the franchise system:
 The business has already been proven to work. The franchisor and the network of busily trading
franchisees are testimony to that.
 You are fully trained in all aspects of the business, and sometimes your business partner and/or
key staff receive training too.
 There is an operating system that can be learned and then implemented to the letter, or with a
degree of flexibility.
 The brand is established.
 The franchisor helps with finding a good location that will deliver traffic if that’s what is needed
(e.g. for retail or food outlets) or will be cost efficient if visibility is not paramount (e.g. for
cleaning or home improvement businesses).
 Marketing tools and ad campaigns are provided, both nationally for the brand and locally for
individual franchisees. The majority of franchisors also help franchisees make a major local
impact with a press launch of the business.
 Franchisees receive ongoing support from good franchisors, delivered via toll-free numbers, a
company intranet, newsletters, and regular visits by a representative from the corporate office,
regional meetings and annual conventions.
 Centralised purchasing is a feature of many franchises where the franchisee benefits from
discounted pricing on goods for a retail store or ingredients for a
restaurant and other supplies.
There are many different types of franchise opportunities available, with various
investment commitment levels that can range from minimal to more substantial.
For those not ready to leave their day jobs, there are plenty of offerings that
require only a part-time commitment that grows gradually. Ambitious
entrepreneurs, who want to totally commit themselves to owning a business,
have a vast range of choices.
Like anything else in life, there are pros and cons involved. Conduct indepth
research to ensure the benefits of franchising outweigh the disadvantages in
your personal situation.
7
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved
Assessing Yourself
To succeed as a franchise owner, you must be able to follow the rules and conduct of the business
according to the provided instructions. If you find it hard to follow someone else’s rules, then a franchise
probably does not suit you.
Recognising your true abilities, natural preferences, and real limitations is the first step to success in any
type of business. By having some clear direction as to your goals, personal commitments, and lifestyle
choices, you’ll have a better idea of the most realistic way to achieve your ambitions, and eliminate
wasting time on researching franchise choices not suited to your temperament and abilities. To help you
with your self-assessment, grab a pen and paper, and consider these points to honestly evaluate yourself:
Your goals:




Where do you want to be in five years? In ten years?
Do you want to make a full-time commitment, or start out slowly?
How important is money vs. job satisfaction?
Are you motivated by personal challenge?
Your talents, abilities and temperament:







What activities, such as sports, computers, decorating, etc., do you like to do?
Are you better at physical or mental tasks?
Are you good at interacting with people or organising things?
Are you an outgoing people person or more introverted?
Are you patient in the long term or eager for fast results?
Do you prefer to wear business attire, a uniform or casual dress?
Do you want to be outside and on the go, or work inside the same premises each day?
Demands on yourself and family:





What about your physical endurance – can you work long hours on your feet or do you prefer
sedentary work?
What is your preferred work schedule – fixed hours or flexible? Do you want to have your
weekends free? Are you a morning or night person?
Is your family supportive of this venture? How will it impact their lives? What are your child care
commitments?
Do you want clear separation of your business interests from your home and personal life?
What about leisure time -- do you want to be able to attend evening social gatherings or school
events? Take time away for holidays?
Your financial situation:




Do you have the resources to buy a franchise and survive the initial start-up phase?
Can you cope with unexpected losses or setbacks?
What is your risk tolerance? How much of your assets are you willing to put on the line?
What is your credit history and can you raise financial backing?
8
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved
Finding Franchise Opportunities
Franchises exist just about everywhere, and offer many choices. With so many options, it can be hard to
narrow your options to a short list of possibilities. The internet is a good place to start your research, as
are print directories, tradeshows, business-specific publications, and franchise brokers. Here are a few
resources and directories where you can start your initial search:
http://www.franchise.org
This is the official web site of the International Franchise Association.
http://www.franchisedirect.co.uk
This directory offers detailed descriptions of franchise opportunities in all
types of industries, plus other information resources on franchising.
http://www.thebfa.org
The British Franchise Association’s official website
http://www.franchise-update.com
Here you’ll find several publications about the franchise industry.
http://www.franchisetimes.com
A monthly publication offering articles on different aspects of franchising.
Once you narrow it down to a few choices, you should consider:
 Is it a genuine business format franchise vs. a product distributorship?
 Does the franchisor belong to industry associations such as the IFA
and BFA?
 Has the franchised business been proven in practice?
 Is there a strong trademark name or brand?
 If it is a new business, is it a fad? How has it been tested?
 What is the competition and how do prices of the product and
services compare to competitors?
 Are the products patented?
 Will the source of products be guaranteed in the future?
 Does the franchisor disclose financial information upfront?
There are clues that should tip you off as to whether a franchise offering should be avoided. Remember,
if it sounds too good to be true, then it probably is a misleading presentation. Other signs that signal
questionable businesses are sloppy web sites with obvious grammar and spelling errors. If a web site
seems like all hype, then it probably is just that. And don’t fall for overly aggressive marketing that bullies
the prospective buyer into acting fast without time for careful examination of the business.
9
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved
Franchise Costs
Franchises and independent small businesses for the most part share many of the costs associated with starting
a business. However, franchises do have some special costs associated with them, which are profiled here.
Franchise costs are commonly divided into two categories: initial (or upfront) costs and ongoing (or continuing)
costs. Initial costs are the expenses that the franchisee will pay in order to begin operation of the franchised
business while ongoing costs are the expenses involved in maintaining operation. Franchisors have various ways
of presenting the costs associated with beginning and maintaining one of their franchised businesses so please
consult the literature of a specific company for a complete breakdown of costs associated with investing in that
franchise.
Initial Investment Costs
The initial costs of a franchise can range from a few thousand pounds into the millions of pounds depending
on the industry, building requirements, equipment needed, and several other factors. The most notable fee
that varies from franchise businesses to non-franchise businesses is the franchise fee. This fee stems from
the heart of the franchise model, and helps the franchisor ensure that their business system will be executed
as consistently as possible across all of their units. Some common initial costs in beginning a franchise
business across all industries are:
●
●
●
●
●
●
●
Franchise Fee
Training Expenses
Leasehold Improvements or Real Estate Costs
Equipment
Professional Fees
Advertising/Marketing
Working Capital
The range of investment between different industries can be large, as can the variation within a single
industry.
10
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved
Ongoing Costs
After the franchise business is up and running, there are a number of expenses required for the
successful maintenance of the business as well as for being a part of the franchise system. Like the
franchise fee, the royalty fee is a main differentiator between a franchise and a non-franchise business.
Typically royalty fees are assessed as a consistent percentage or flat fee due weekly or monthly, and are
predominately assessed for the franchisee to continue reaping the benefits that come with being a part
of the franchisor’s business system. Common ongoing franchise fees include the following among
others:
●
●
●
●
Royalty Payment
Advertising/Marketing Fund
Technology Fees
Insurance
In addition to the regular fees, there are fees
associated with the franchise system that aren’t
assessed or collected regularly including:
●
●
●
●
●
●
Ongoing Training
Transaction Fees
Interest
Audit
Indemnification
Renewal Fee
Due to the depth and variety of franchise businesses, the given fees illustrated in this booklet are only
the most common and not a complete listing. Additional fees collected by franchisors along with ones
that are specific to certain industries such as reservation fees for hotel franchises can be found within
the literature franchisors are required to make available to prospective franchisees. Please note that
there are also ongoing costs that are no less important to the continued operation of the franchise like
employee wages.
As you have read, most of the costs of
beginning a franchise are similar to beginning a
non-franchise business with a few notable
differences. Though no business venture can be
a guaranteed success, the features given in
exchange for the additional costs that come
along with investing in a franchise can help
bolster an entrepreneur’s chances of creating a
successful business.
11
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved
Financing Your Franchise
Items to Prepare Beforehand
Gaining the necessary financing for your franchise venture can be an overwhelming task, but preparing
all of your documents in advance can help tremendously speeding up the process. Different institutions
will more than likely have varying forms and documents they want submitted. The following checklist
will help you in gathering all of the paperwork that lenders may require to complete your application.
 Personal background
This includes educational and work history, criminal record, etc.
 Business plan
All lending programmes require a business plan that includes, among other things, projected
financial statements, balance sheet, cash flow statement, and income statement.
 Personal credit report
The lender will access your credit report during the loan application process. Remember to
request a credit report from the national credit-reporting bureaus before you send the loan
request form so you can review them for accuracy.
 Loan information
Specify the amount of money you’re requesting, the type of loan, how the loan will be used, and
the amounts of assets you currently have.
 Business financial statements and income tax return statements for the past three years.
 Bank statements
Personal and business bank statements for the past 12 months.
 Accounts receivable and accounts payable for the past 90 days.
 Collateral
Some loan packages do not require collateral. But, if collateral is required, describe what will be
used to secure the loan.
 Legal documents
Lenders may require additional documents, such as franchise agreements, business
license/registration, commercial lease, articles of incorporation, etc.
Financing Options
There are several options available to obtain the amount of money
obligated for the costs of the franchise. Here are the most common
avenues of financing:








Financing directly from the franchisor
Commercial bank loan
Credit union loan
Personal savings/Retirement fund
Angel investor
Family/friends
Grant(s)
Credit card(s)
12
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved
Tips for a Successful Meeting with Lenders
Do:






Know your figures inside out. Have them checked and double checked. Asking the potential
lender for a pencil while working out percentages on the back of a supermarket receipt won’t
showcase you as the thoughtful and organised business person you are.
If possible, bring an accountant or well-versed liaison/representative from the potential
franchisor. You still need to know your business plan and financial documents by rote, but they
have years of experience dealing with figures and accounts.
Sell yourself. Include your CV and a small personal history about yourself. Explain why you’re
passionate about this business model, your experience and your motivation. Convince the
manager that this is the right franchise for you.
Use the bank’s planning templates and documents. You can download these from their
websites, or pop into your local branch to pick some up.
Research what start-up grants and (if any) are available from the government. How much are
they, have you applied for them? If you’re not entitled to a grant, why not?
Prepare a worst-case scenario projection along with the more positive ones. Be honest with
the lender and with yourself. If things turn for the worst you may be liable for a large
repayment.
Don’t:





Forget to bring ID, a utility bill and three months of personal bank statements if you need to
open an account.
Ask for the entire amount required to start your business. The Wall-Street Journal reports that
entrepreneurs generally invest 20% of their own money into the franchise.
Be late, impolite, impatient, dirty or disorganised. No-one wants to deal with unorganised
people. These are an instant turn-off. Act like you would on a first date (avoid playing footsie
however…)
Leave without arranging another meeting with either the manager or someone else in the
bank. Hearing “I’ll be in touch” can often be the last words you hear before possibly receiving an
impersonal rejection letter weeks later. Convince the manager that this is a great idea, and if he
has any misgivings that you are prepared to work through them to produce a solid business
model.
Give Up. It is far more difficult to get a penny
out of the banks for start-ups at the moment,
so don’t lose faith if you don’t receive
funding straight away. If you are rejected,
arrange a meeting to discuss where the
pitfalls were. Go back to the drawing board
and revisit your research.
13
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved
Signing the Franchise Agreement
You and your solicitor have examined the Franchise Contract. You’ve done your research about the
franchise, and the numbers add up. You’ve spoken with other franchisees in the business, and like what
you’ve heard. You feel ready to sign the Franchise Agreement.
The Franchise Agreement is a legally binding contract that should stipulate in exacting detail, the
responsibilities and expectations for the franchisor and franchisee.
Keep in mind that Franchise Agreements are written to be generally more advantageous toward the
franchisor. Once signed, you are legally obligated to uphold all the provisions of the Agreement, so it is
absolutely essential that your solicitor review this contract and have everything explained to you in plain
English.
Before signing, compare the Franchise Agreement to the initial information to make sure the franchise
offering as outlined matches what is stipulated in the Agreement. If any verbal promises were made to
you, be certain these are written into the Agreement. Once signed, the Franchise Agreement governs
your relationship with the franchisor, and any disagreements or misunderstandings will be subject to the
terms in the Agreement.
Because it is a legally binding contract, there are certain critical elements typically found in all business
contracts and some that are unique to franchises. You and your solicitor should carefully scrutinise every
aspect of the Agreement to be sure you understand all the implications.
Some Negotiation Tips
Many franchisors have rigid Franchise Agreements that all their franchisees must sign and adhere to.
However, some franchisors may be more flexible about negotiating the terms in the Agreement. But, be
careful – since franchises are all about proven systems and consistency, a franchisor that seems too eager
to bend the rules may be a sign that the business is in a measure of trouble.
Items that typically offer room for haggling include:
 Territory rules about exclusivity, future expansion or changes in size
 Grand opening support and resources provided to you
 The training provided to you and possibly your staff
 Rules about transferring the franchise to other franchisees
 Fee schedules and payments
 “Default cure” which governs how much time you have to correct a problem that keeps your
franchise from operating properly before you are in default of the contract
 The start-up date when you are expected to launch the business
 How the price will be calculated for the franchisor to buy your business once you’ve reached the
termination date
 Your liability limits regarding franchise performance
Your solicitor and your accountant are the most familiar with your individual situation, so seek their
advice about which Franchise Agreement terms you should attempt to alter to make more favorable for
you.
14
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved
Minorities and Franchising
Franchising opens up new opportunities for minority groups to learn new skills,
grow and expand their businesses, or acquire a new business and in recent
years, the IFA and other associations have set up programmes, to increase the
number of minority owned franchise firms.
With increasing numbers of franchise companies becoming active in the
recruitment of minority franchisees, their commitment to diversity and
multiculturalism in the industry, can help minorities achieve their dreams of
franchise ownership.
Women and Franchising
Women and Franchising: Top Franchise Characteristics
According to Iain Murphy in his book (The Franchising Handbook: The Complete
Guide to Choosing a Franchise), women are in some ways better suited to
franchising and make a more attractive group as potential franchisees.
Here are a number of interesting characteristics that make women in franchising
a successful target group for franchisors:
 Women are good at organising, at coordinating activities and people
efficiently. This means women franchisees will be naturally inclined to
organise and coordinate their franchise opportunity more productively
and profitably.
 Women are good at prioritising, at deciding which activities are more
important than others. This particular skill works well in the franchising
industry, when problems arise concerning planning, staffing, financing
and people management.
 Women enjoy working towards a common goal. Women operating a
franchise will work to make that franchise a success, for all franchisees
involved under the one franchise operation.
 Women are good at networking, ensuring effective communications are
created between franchisee and franchisor, and franchisee and all other
internal and external bodies.
 Franchising can offer women who are ambitious the opportunity to go
into business and to be potentially successful and profitable on a
personal and professional level.
15
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved
Advantages for women running their own franchise



In franchising you get to be your own boss, and take control of your own life. Women franchisees
are more successful because they enjoy the work/life balance franchising can offer, making it
more appealing to be their own boss.
With 20% of small businesses failing in the first year of business, the concept of franchising offers
assurance for women, interested in minimising business start-up risks. The tried and tested
formula helps reduce the risks by providing training, help and support.
After a career break or pregnancy, women can often feel a lack of confidence in returning to the
workplace. Franchising gives women the opportunity to rebuild their skills and knowledge in a
supportive and successful environment.
Franchising offers a tremendous opportunity for ambitious women to start their own business. Women
and franchising can make a very successful combination.
Retirees and Franchising
Today’s 50+ population is reluctant to be
“put out to pasture.” Instead many
people in their 50s and beyond dream of
owning a business when they leave the
traditional workforce. And there is no
reason that older people driven by the
entrepreneurial spirit cannot achieve
their dream. For example, Colonel
Harland Sanders was 62 when he sold
the first Kentucky Fried Chicken franchise
in 1952. Twelve years later, KFC was a
popular fast food restaurant with
locations throughout the US.
Franchise companies are recognising
that older, experienced workers retiring
from regular jobs are good candidates for
franchise ownership. They have confidence from the wisdom gained over the years in the workforce.
They know how to plan ahead and reliably persevere to reach goals. And their experience has refined
and sharpened their interpersonal skills.
But before rushing into franchise ownership, retirees must carefully consider just what it is they want do
in this next phase of their lives. Quality of life should be the first priority, so that factors such as time
commitment and physical endurance must be carefully weighed. The financial aspect is another major
influence – as one approaches retirement age, it is unwise to bet the farm on any investment. Retirees
are better off looking for franchises with lower up-front costs and minimal ongoing overhead.
16
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved
Home-based Franchises
In recent years, home-based franchising has become more popular as a range of companies have
discovered that working from home can be just as effective as having an established office elsewhere.
Franchisors in several sectors such as consulting, children's services, financial services, computer training
and repair, cleaning, pet care, photography and travel, are now actively offering potential franchisees
opportunities to have their headquarters where they live.
Potential home-based franchisees must check with their local authority to see if there are any rules
restricting the commercial use of a property and then decide if it is still worth working from home. Some
towns do not allow businesses to be run from home, or have restrictions on it. For instance, customer
parking could cause a problem should special permits be required for spaces used commercially.
If approved, this arrangement can save costs for both franchiser and franchisee, although specialist
training will be needed to ensure that franchisees will be ready and able to run a successful franchise
from home, as they will have to adapt to a unique working style.
It is important that franchisees working from home have in place the right equipment. To make sure
things are run efficiently, a desk, stationery, posting equipment, notebooks and other items should be in
a set place.
Establishing distinct boundaries between the office and living space will help to make the franchise more
professional.
It is advisable to have a separate business phone line to keep work and home life apart and if using a
computer, it should operate at a fast speed so that more work can be done during a day. The same
applies for an internet connection and email software.
Franchisees at home must have their office or workspace in an area away from potential distractions
such as roommates, children, pets and television.
Having a schedule and sticking to it as closely as possible will also help, including regulated breaks,
although franchisees should not fall into the trap of working too long because they do not have to travel
to work, which can be counterproductive and have a negative
impact on the business, as well as family and friends.
Those who are self-motivated and can work to these
conditions should do well as long as the franchise they choose
is right for them and gives them sufficient training and
support. However, it can be lonely at times so franchisees
wanting to work at home are advised to develop a network
with the company's other home working franchisees and
business owners in their area. These groups can provide each
other with useful ideas and vital support.
17
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved
Part-time Franchising
Starting a part-time franchise is a great
opportunity that can lead to the growth and
development of a successful business. Parttime franchising is defined as any franchise in
which the franchisee works on average
between twelve and twenty hours a week.
This work arrangement can be the ideal job
for an entrepreneur who is looking to start a
franchise and keep their work-life balance.
Work-life balance attractions include family
responsibilities and recreational and leisure
activities. An individual’s civic responsibilities
can also increase the need for reduced or
more flexible working hours. These
obligations can include volunteer work,
community work such as local school
positions and environmental protection jobs,
or serving on a legal jury.
Franchisees that are looking to work at their
own pace, control their own schedule, or
earn a supplemental income are frequently
opting for the part-time franchise option.
Part-time franchises are also good for
workers who are changing from a corporate
job who don’t want to leap directly into
franchise ownership, but want to phase into
their franchise lifestyle over a period of time.
The motivation for starting part-time
franchises can differ for males and females.
Research shows that combining work with
education or leisure time is the main goal for
male franchisees. Female franchisees prefer
part-time franchising as it helps balance work
and family. In this way, part-time franchising
is an attractive option for women returning
from maternity leave, people with young
families, or stay-at-home parents.
With an increased focus on family-friendly
work and the work-life balance, part-time
franchising is a viable option for
entrepreneurs and/or first time franchisees.
18
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved
Alternative Modes of Franchising
In most cases, entrepreneurs arriving fresh to franchising would invest in a new, single unit franchise. In
this type of franchise, the franchisee is only responsible for running one unit where they are involved
with all of the daily operations of the business. However, there are other ways to enter the franchising
world.
Multi-Unit Ownership
Multi-unit ownership is where the franchisor grants a franchisee the right to operate more than one
outlet within a defined location. With this right comes the potential for serious money making as well as
increased responsibilities in operating your businesses.
Franchisors have high standards in regard to granting multi-unit rights. You must have a proven track
record of successfully managing a business, with the ability to motivate your staff and continually seek
performance improvement. If you already own a franchise, expect the possibility of having to make a
convincing argument in support of your application to own multiple units. Exhaustive research about
your market and competition for each unit must be done, along with a strict accounting of your own
personal and professional finances. However, some franchisors do offer a discounted rate on the startup costs involved in the case of franchisees opening multiple units.
Resale Franchises
You may have opportunities to buy existing franchises from either a franchisee or the franchisor. Often
you can get a discount on these sales, and since it is an existing business, you can examine all the records
for sales, costs, and profit margins to make an informed decision. A franchise unit that has changed
hands repeatedly probably has problems, and you should take extreme care in reviewing its history for
several preceding years.
Master Franchisee Licenses
Another means of expansion in franchising is to acquire a Master Franchise license. This puts you in
charge of other franchisees within an established territory, which could be as small as a county or as
large as a country.
A Master License requires a significant investment, but offers tremendous rewards in return. With the
Master License, you have the power to appoint and train new franchisees, and the right to collect a
portion of the fees these franchisees pay to the franchisor.
As with buying an individual franchise, you will need to do extensive market research before making an
investment in a Master License. And just as with the Franchise Agreement, you must carefully scrutinise
all the terms so that you fully understand your obligations and rights as a Master Licensee. Be sure the
territory is carefully defined. Consult an attorney experienced with licensing contracts. Expect some of
the franchise units to flounder, and be prepared to step in to help run the operation.
19
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved
Area Developer Rights
In addition to Master Licenses, one can also purchase the right to be an Area Developer. In this case, the
franchisor enters into an agreement with an area developer to sell a specified number of franchises in
the area within a specified time. Area Developer agreements are not common in the U.K., but tend to be
used more for international expansion.
Make Sure Your Franchisor is Open With You
We’ve put together some tips to learn the nitty gritty about the franchise business that may change your
life.
 If you are invited on a tour with a current franchisee and the current franchisor comes along, try
to come back later so the franchisee won’t feel under pressure to present a perfect image of the
business.
 Be aware that the frachisors may give bonuses to current franchisees that help get newbies on
board, so try to figure out if they are being totally truthful.
 The more franchisees you talk to, the better the information you will get.
 If the franchisor supplies you with a small pool of contact details, get out the phone book and
ring around other franchisees. Use Google to research what news and events the franchise has
been involved in.
 Try to get in touch with a wide variety of franchisees, from the most successful, to the struggling.
This way you can assess whether the business is flourishing or failing because of the business
model or the franchisee themselves. Talk to the oldest franchises and the newest ones. The guy
who is just scraping by six years in will be as valuable to talk to as the star new kid in town who
has already broke his first million.
 Use your gut, and try to get a feeling for the motivations of the franchisees you talk to.
You should have your own questions for franchisees depending on which industry you’re investigating,
but here is a checklist of must-ask things to quiz franchisees on:
Franchisors Are There To Help You
It might be useful to rate these questions on a scale of one to ten:
1. Are you happy with how the business is working out? If not, what issues are affecting you?
2. How is your experience different from what you expected?
3. Have you made your initial investment back yet? Did it take longer than you thought?
4. How many hours a week do you work? Has this impacted on your personal life?
5. Was the training what you expected it to be? Was it intensive or tailored to your own needs and
abilities?
6. Does the franchisor put any restrictions on products/services you can supply? How has this
affected you?
7. How would you rate marketing and advertising? Does the franchisor do all you expected or they
promised?
8. What support do you receive now? When problems have arisen how responsive was the
franchisor?
9. What did it cost you to build and start the franchise? Were there any hidden costs?
10. What are the best and worst moments since you started?
If the average score of the franchise interviews is coming in at more than five out of ten, it could be an
indication that this could be the right franchise for you!
20
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved
Final Advice
Here are five main points to remember when making your decision on which franchise system to invest
in:
1. Find an outlet for what you’re passionate about. Virtually all of the franchisees we speak with
mention how much they love the area they are working in.
2. Scout your area and match what you want to do with a need in your community. This will
increase the likelihood of your franchised business being a success. Also, you will be able to take
advantage of local contacts you’ve garnered over the years.
3. Finding financing in this economic climate can be difficult. Many traditional avenues of funding
are either closed or very rough to navigate. As you look at franchise options, honestly audit
yourself to determine how much you can afford.
4. Visit other franchisees. During the research process of learning about any franchise you have the
opportunity to speak to existing franchisees to gain an even clearer idea of what to expect. Their
names and locations should be provided by the franchisor. Take advantage of this opportunity to
learn what happens when you open a franchise, in practical terms, from someone who has been
there before.
5. Make sure you really want to be a part of the franchise system. Franchising is for people who
want to own a business, but don’t want to do it alone. If you are an entrepreneur that values
independence in making decisions, you will probably find franchising too confining.
Franchising is a time-tested way for everyday people just like you who have made the decision to run
their own business. When you’re ready to begin your journey to franchise ownership, browse through
our listings on FranchiseDirect.co.uk and find a franchisor that suits you most.
21
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved
Common Franchise Terms
Advertising levy
The advertising levy covers the franchise system’s advertising and promotional activities.
Agreement
The franchise agreement is a legal written document that governs the relationship between the
franchisor and franchisee. It specifies the terms of the franchise contract such as rights and
responsibilities of the parties, fees and payments, territory and duration of agreement.
Approved Franchise Association
The AFA provides the Franchise Industry within the United Kingdom with a voluntary, self-regulatory
body; serving it's members, potential new franchisees and the industry as a whole.
Approved Site
The approved site is the location that the franchisor chooses, for the franchisee’s set-up, which meets
the criteria of the franchise unit.
Area Franchisee
An area franchisee purchases the right to open and operate a specified number of franchise locations, in
a defined geographical area, during a defined period.
British Franchise
The British Franchise Association (bfa) is the voluntary self-regulatory body for the UK franchise sector,
with a standards based approach to membership. Its aim is to promote ethical franchising practice in the
UK and help the industry develop credibility, influence and favourable circumstance for growth. As a
result one of the bfa's main jobs is to help potential franchisees recognise the good, the bad, and the
ugly for what they are.
Business Plan
A business plan is a document prepared by a franchisee, which summarises its operational and financial
goals and objectives for the franchise, and contains detailed plans and budgets showing how these
objectives are to be achieved.
Capital
Capital is the wealth required by a franchisee. Human capital consists of the franchisees experience,
leadership, and knowledge he/she will bring to the franchise.
Collateral
Collateral is a form of security that the borrower may offer the lender to guarantee a loan or other
credit. Collateral can be resources, belongings, or something of wealth and value to the borrower.
Copyright
Copyright is the exclusive right of a person to use, and to license others to use, works of art, music, or
literature, and to protect these works from the unauthorised use. This statutory right prevents others
from copying or exploiting a person’s work without permission.
22
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved
Earnings Claims
Earning claims are the actual or forecasted franchise sales, profits, or earnings stated by the franchisors.
Equity
Equity is the total value or worth of an asset. It is an individual’s or company’s shares and ownership
rights of an asset, and does not represent an obligation to pay in the future.
Feasibility Study
A company that is thinking about becoming a franchisor carries out a feasibility study.
Franchise
A franchise is an agreement in which a firm (franchisor) enters into a contract with other businesses
(franchisees) granting them the authorisation to operate in the distribution of goods and services, under
the franchisor's trade name and guidance, in exchange for a fee.
Franchise Consultant
A franchise consultant is a business guide with expertise in the franchising industry. They give advice on
topics such as franchising operations, companies, and relationships.
Franchise System
A franchise system refers to the different franchises operating in the UK.
Franchise Unit
A franchise unit refers to each individual outlet, whether company owned or franchised.
Franchisor
A franchisor is an individual, partnership, or corporation who grants an investor (the franchisee), the
right to conduct business under their trade name, using their operational methods and organisational
systems.
Franchisee
A franchisee is an individual, partnership, or corporation who purchases the right from the franchisor to
conduct business under their trade name.
Initial Investment
The total investment is the capital required to start the franchised business.
Initial Franchise Fee
The initial fee is a once off lump sum, paid by the franchisee to the franchisor, upon signing the franchise
agreement.
International Franchise Association (IFA)
The International Franchise Association (IFA) is a non-profit trade association of franchisors, franchisees,
and suppliers. Founded in 1960, the IFA’s office is based in Washington, D.C.
Licensing
Licensing is the legal act of one party granting rights to another party to a legally protected property in
exchange for a fee or royalty.
23
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved
Master Franchisee
A Master franchisee is the individual who negotiates the franchise rights for a defined territory (usually a
country), and assumes the rights and obligations of the franchisor in that particular territory.
Marketing
Marketing is the process or technique of planning, pricing, promoting, selling and distributing products
and services to create exchanges that satisfy both the customer and the organisation.
Multi-unit franchisee
A multi-unit franchisee is one that owns and operates more than one unit of the franchise, but does not
have the rights to a defined territory.
Operations Manual
The manual contains instructions advising a franchisee how to operate the franchise.
Pro Forma
The Pro Forma document is a description of financial statements which rely on historical data to assume
levels of revenue, expenditure, assets, liabilities, and net worth.
Royalty Fee
Also referred to as the “management service fee”, these fees are the continuous payments the
franchisee gives the franchisor to stay part of the franchise system.
Supplier
A supplier is the authorised individual or company who has been approved by the franchisor, to supply
products or services to the franchisee.
Territory
Territory is defined as a specific area in which the franchisee has the exclusive right to conduct business,
without the threat of competition from fellow franchisees.
Trademark
A franchise trademark is a form of identification such as a brand name or logo, which is associated with
the franchise.
24
www.FranchiseDirect.co.uk
Franchise Direct UK
Unit 106 / The Capel Building
Dublin 7; Irland
©Copyright 2012 Franchise Direct. All Rights Reserved