The Franchise Relationship Dynamic
The franchise relationship dynamic is one of give and take – it is built on trust with both sides working in collaboration.
Those of our readers old enough to remember and have appreciated Monty Python and Flying Circus will know the ‘What have the Romans ever done for us?’ sketch.
The premise is that British downtrodden serfs are being encouraged to rebel on the basis that the Romans took money and gave nothing in return. Of course, it then turns out that the Romans had bought many things to our country when first they invaded us – from buildings, to roads, to sanitation, to the language we speak, numbers, the use of money – the list goes on.
What reminded me of this was thinking about what franchisors do for franchisees, and the opportunity you have at franchise exhibitions to ask franchisors – “What do you do for your franchisees?!”
Without retreading the events of the last two-plus years, there is no doubt in my mind that Covid brought out the best behaviour in people and certainly brought out the behaviour in franchisors. Almost overnight they had to turn their business model on its head, and whilst trying to help their own business through the challenges were also faced with supporting franchisees survive with their business. The industry as a whole reached out to its community – the British Franchise Association invented ‘The Power Hour’ – a weekly forum which continues today in which franchisors, whether or not they are member of the bfa, can come online and share their issues and challenges and hear solutions from others who have been there before, or collectively find a way forward. Advice was always willingly and freely given.
When you invest in a franchise you receive:
- A proven business concept.
- Access to ongoing support, information and problem solving.
- A franchisor who will take care of central marketing, websites, call centre and, possibly, centralized administration alongside product sourcing and supply chain, negotiating purchasing prices that individual businesspeople cannot achieve.
- The knowledge that the marketplace is attractive for the product or service (somebody starting up in business often has to take some quite big leaps of faith in starting their business.)
Starting your own business is a big risk but buying a franchise reduces that risk. Finding funding to start a business is not easy but banks particularly support franchising which makes it possible for people to borrow more than they might if starting from scratch.
The franchising relationship is built on trust – the franchisor has the proven business formula, methods and model – the franchisee has the drive to follow and build a business. Both work in collaboration for the franchise business to reach its potential and both have interest in seeing this succeed.
So, ask yourself some questions as to whether or not you would like to go into business completely on your own or as a franchisee. In doing that think about how your own situation may play out and answer these questions:
- How much consideration have you given to the financial impact of starting a new business?
- How supportive are your family and those closest to you, of your plans to start your own business?
- How could a drop in household income for perhaps more than a year be managed?
- How effectively can you deal with high pressure and stressful situations?
- How open are you to receiving guidance and support, especially if it does not necessarily reflect your own views or opinions?
- How flexible is your work mentality and can you apply focus to different jobs as may be required and multi-task effectively?
- Do you usually have a positive mindset, and have plenty of drive, determination and perseverance?
- How acceptant are you that self-employment, including franchising, often requires harder work and longer hours than employed positions?
- How acceptant are you that a franchise does not bring a guarantee of success, but is more likely to be successful is you work hard and follow the proven business model that a franchisor provides?
- Do you have a decisive mindset, and could you make the decision in the first place to step out of employment and into self-employment?
Once you are determined that the franchise route is for you then here are some top tips:
What to find out from the franchisor:
- Financial health and track record of the company
- The company’s franchising history
- Results of the pilot operation (if applicable)
- Current number of franchisees
- Permission to talk to existing franchisees
- Company’s main source of earnings
- Value, appeal and long-term viability of product/service
- Head office commitment to support
- Full details of the initial training programme
- Additional training costs to the franchisees
- Total size of the franchise investment requirement
- Realistic estimate of working capital needed
- Bank and other references
- Territorial practices and exclusivity terms
- National and regional advertising practices
- The exclusivity of product supply contracts
- Franchisor’s margins on product supply
- Target obligations
- Realistic franchisees profit and loss figures
- Management Service Fees
- Restrictions on franchisee’s operations
- Franchisor’s launch assistance programme
- A sample of the Franchise Agreement
Warning signs in reviewing a franchise – be wary if the franchisor:
- Tries to get you to sign a Deposit Agreement to reserve a territory
- Does not offer an automatic right to renew your agreement
- Has a very short-term contract
- Pressures you to ‘act now’ before the cost goes up
- Tries to trade you up to a higher fee
- Demands large front-end licence fee
- Promises huge profits with thin investments
- Promises ‘easy sales’
- Promises profits by sub-franchising
- Promises large income working from home
- Fails to give statistics on sales and profits
- Evades identifying Directors or principals
- Has no data on financial track record
- Cannot give plans for future development
- Has incomprehensible contract or vague territories
- Is vague about support and training
- Has a name similar to a well-known business
- Is ignorant of competition
- Has weak advertising
- Avoids detailing your financial obligations
- Tries to meet only in a hotel or has poor head office premises
- Is evasive about access to existing franchisees
There is much information to consider here but it is so important that you do, so that you enjoy a long a fruitful relationship with franchising.
And so, you can see that Monty Python would have struggled to say, ‘What do franchisors ever do for us?!’
© Nick Williams, Ashtons Franchise Consulting.
This article was published in the Summer 2022 Edition of Business Franchise Magazine.
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