Franchise advice: Getting started
Current trends in the Irish marketplace
With the fastest level of entrepreneurship in Europe, 1 in 12 people are currently looking to set up a new business. This competitiveness and confidence has bolstered a rapid expansion within the franchising sector.
Sales of products and services through franchising outlets have increased by 42% in the past 3 years. The 2006 industry report on Franchisee Satisfaction by Franchise Business Review, report that 72% of current franchisees believe in a very strong growth opportunity for their business. This confidence and increase in sales has shifted the perception that franchising is only for the fast food sector. Its popularity is now growing to attract diverse business models such as printing and clothing manufacturers.
What is Franchising?
Franchising is a form of marketing and distribution in which the franchisor grants the right to run a business selling a product or providing a service to an individual or company using the franchisor's business model. A franchise system includes a format for the conduct of the business, a management system for operating the business and a shared trade identity.
Why choose franchising?
If you are thinking of going into business on your own account for the first time, or are already in business but would like to do something new, it could pay to look at franchising.
Starting a new business always carries risk, but a franchise could reduce that risk as it enables you, the franchisee, to use the franchisor’s proven business system. The franchisor passes on their know-how and established trade name. You will enter into a legally binding contract known as a franchise agreement, which is usually for an initial period of five years or more and you should have the right to renew it in future years so long as you are not in breach of any of its terms.
In return for allowing you to use the franchisor’s name and system, and for the continuing support you receive, you pay an initial fee. This is mainly to cover the costs the franchisor incurs in setting you up in business. On-going
payments are then made throughout the period of the franchise agreement.
These latter payments are normally in the form of either:
- a management services fee calculated as a percentage of your sales turnover OR
- a mark-up on the goods or materials the franchisor sells to you, in the same way that a wholesaler takes a argin on the goods they supply to a retailer.
Franchise terminology explained
Franchisor
The franchisor is the developer (person/company) of a product or services, who offers investors the right to trade under the franchisor’s business. The franchisor also provides support in setting up the franchise and in its ongoing operations.
Master Franchise
The Master Franchisor is an individual or company who buys the franchise right for a wide territory (usually a country) and manages the franchise system for the franchisor for the terms of the contract. The Master franchisee then has the right to operate in a wide country and manages the franchise network for the franchisor. They have the right to appoint, train and receive a fee from the franchise for specific territories within their country. In return, initial and continuing fees are paid to the franchisor depending upon the number of franchisees operating in the territory. Master Franchising is typical when franchises operate internationally.
Franchisee
You. A franchise is a business arrangement where the owner of a product, a service or even a recognised trade name agrees, for a fee, to allow a person/company to trade using the same product service or trade name, and passes the benefit of it’s know-how to that person/company.
Franchising agreement
The franchise agreement will always say what is being franchised:
- The conditions of franchise.
- The obligations of both parties.
- The duration of the agreement.
- The territory in which you will operate.
- The payment or fees arrangement.
- Termination conditions.
- Renewal entitlements.
- Disposal provisions.
