The franchise business and location document as a chief factor
Written by Ángela ·
According to the BFA, the franchising system in the UK dates back to the post second world war times when companies expanded swiftly alongside high population growth, economic output and social changes, with the catering sector leading the way. More than 900 leading brands in the United Kingdom, from pet care to multinational retailers, expand their enterprise contributing to the UK’s GDP at GB£15.1 billion. Although franchising may be the ideal and a safer decision for budding entrepreneurs, certain factors need to be considered in this practice.
What are the legalities of the franchising system?
The British Franchise Association in the United Kingdom is a self-regulatory board that supports organisations from providing contract details to safeguarding them from illegal parent documents. The membership is voluntary but requires its members to follow the prescribed code of ethics. Executives follow specific contractual laws that predominantly revolve around data protection, misrepresentation, franchisor support, restraint on trade, etc.
On one side, the franchisors enable the pilot scheme before exercising the expansion, to have own trademarks and brand names, and provide consistent training to the succeeding person. On the other side, the franchisee is obliged to deliver best results to the franchisor, restricted to carry out similar operation during the term of contract and even after, entitled to different fees such as initial, royalty and advertising.
The initial fee is at least 15,000 GBP and the advertising fees can range from 1% to 5% of the new business’s gross sales, according to nibusinessinfo. That said, the UK has no franchise specific laws in addition to the general laws of individual countries, which show minor differences. This is advantageous to local businesses looking for an expansion and also foreign brands planning an international growth in the United Kingdom that can further develop their network without much regulations.
The bond between a franchisor and a franchisee
Despite the above individual duties, there exists an ideal relationship between the two groups, which is more reciprocal and paves way for a win-win relationship. On a brighter side, by expanding the store network, a franchisor accumulates wider customer base, increases brand visibility and learns more about the local market trends. The benefits of a franchisee are: he/she learns the nuances of this practise, receives advice and guidance from the franchisor, reduces the cost burden which otherwise might cost him/her a lump sum money for starting a new one.
Also, a franchisee will be asked to comply with the rules and regulations of the parent company. This overshadows the right to innovate to one’s own liking. Talking about a franchisor, the demerits are high capital expenditure in tandem with legal document preparations, marketing strategies for the new location and solid training. All this amasses huge time and money investment which could decimate a franchising plan.
How to overcome the most common franchisor difficulties? What is a location document? How does it help convince your franchisee and increase your business’s net worth?
An overview of the franchise sector
That said, what is involved in franchising? It can be everything from overwhelming to daunting. Approaching the practise with prudent steps can help the two sides reach the next successful step. It requires effective collaboration from both the playing groups. A franchisor, with his increased revenues might want to open a new store in a brand new location while a franchisee might want to ward off the difficulties of starting a new venture. The practise is initiated to serve both groups with intended benefits.
The next steps
Once a franchisor is comfortable carrying out operation in a location, he/she investigates other prospective areas for further expansion. But the final decision is sometimes taken based on intuition and past experience with no real data to back the credibility of the new location. This leads to a loss in the future blemishing the purpose of an expansion. Following this, a franchisor’s main job is to find the right franchisee to take his/her business to the next level without any hindrances.
The possible solutions
Since relying on intuitions is dangerous for a franchise business, assessing the market in detail has been necessary. An expansion manager can overcome the location difficulties by knowing the customers more: performing surveys and profiling the surrounding stores. Next, one can prioritise the expansion areas. Different areas have unique potential according to the business type. For example, an area might have high disposable income, but low walking traffic. Also, there are locations with high population, but low purchasing power. Hence, it is necessary to prioritise a list of areas as per the requirements based on Big Data.
Moreover, franchising has a highly competitive landscape. Convincing a franchisee for an expansion can be strenuous absorbing all the attention from the franchisor. Thereby, a location document that encloses solid analysis and location data is an effective way to go further. The document must include information such as target customer profiles, exclusive areas, sales forecast and a list of potential locations for building a stronger relationship.
Thus, franchising, an age-old practise, is now a fast growing sector in the world, increasing the visibility of organisations, revenues and the employment rate. However, certain factors prevail within the sector, making the sector prone to incessant difficulties. Our eloquent e-Book adresses the above questions in detail and provides spot on solutions for Expansion directors to explore, analyse, decide and succeed in their franchising endeavour. Go on and read our eBook.