Franchising

Franchising is the term given to describe the paid adoption of another firm's successful business model. The owner of the original business is the franchisor who sells the limited rights to use the business identity, model, processes/products/services usually within a set geographical territory. The buyer or franchisee will pay a purchase price and the requirements to set up the business such as retail premises, corporate products and materials plus a regular levy on turnover. 

Franchises general have a better success rate than new start-ups as the business model has been tried and tested and this is reflected by the willingness of banks to lend to a prospective franchisee for the business purchase. 

The franchisor's success depends on the success of the franchisees and as a stakeholder in the business the franchisee is said to have a greater incentive than a direct employee because he or she has a direct stake in the business.

A huge number of issues need to be take into account when contemplating buying a franchise and the advice of the British Franchise Association, a legal and financial adviser and the High Street banks (HSBC, Nat West and others all have their own franchising departments) who will know of the success and failure of the franchisees they have made loans to. It is crucial that you approach as many if not all of these before making a decision and then before signing and parting with the money speak to current franchisees and look online to thoroughly research and communicate with as many past franchisees of the business as possible.


A copy of the presentation given at the MKEA meeting on 21 November 2012 is available from the Quicklinks Presentations menu on the left.