Franchises
A Third Age Small Business feature
by our Business & Employment Editor

A Franchise is a fully developed business package established by a Franchisor (the creator of the business) who then grants a licence to a Franchisee (the licensee) to trade under their brand name. Perhaps the best-known example of a Franchise is McDonalds.

Any business wishing to establish a national or global brand has several routes they can take. They can develop their business the normal way by establishing and developing one outlet and then replicating that outlet in other geographical locations by way of raising finance or out of the profits of the first outlet. Alternatively, they can develop one or a number of outlets themselves and, having developed their brand, license others to trade under their brand for a fee. That is known as Franchising.

The advantages of Franchising for the Franchisor are obvious. Rather than using their own money or borrowed finance to establish further outlets, they can Franchise their operation and use the money paid by Franchisees in order to create those exta outlets. The Franchisee pays an upfront fee which pays for the establishment of the further outlet, and then a commission based on the percentage of their sales. Having a vested interest in the business, the Franchisee will naturally work harder to ensure the success of the business than would an employee. And while the Franchisor has to share the profits of the enterprise with the Franchisee, the fact that Franchisees effectively pay for the start-up costs of each new outlet enables the Franchisee to expand their business at a faster rate with a lower degree of risk.

The advantage for the Franchisees is that they are buying into a ready established business with a tried and tested formula for success and, generally, an established brand name under which to trade. The Franchisor has the responsibility of advertising and promoting the Franchised business since it is in his interest to ensure that the business succeeds. Likewise the Franchisor has the responsibility for training and product development so the Franchisee is free to concentrate on running their shared business. By and large, it is a win-win situation!

There are said to be some 34,000 Franchise operations currently operating in the UK with a total turnover, as of 2007, of £10.8 billion. Employing some 370,000 people, Franchising accounts for 15% of GDP so we get the impression the Franchise model works.

With Franchise operations available as diverse as fast food, fitness, accountancy, finance, retailing, internet and cleaning to name but a few, there’s sure to be a Franchise operation that would suit most Third Agers!

Read original blog post