EVENT: The British and International Franchise Expo 2012
LOCATION: Kensington Olympia
DATE: Friday March 16
Reporting by Ben Goldsmith
There were crowds of potential franchisees in attendance, all eager to work their way around the exhibiting franchisors, hoping to find their next project.
The BIFE also provided a packed diary of seminars. There were numerous seminar spaces around the Olympia, all of which hosted a range of expert-led seminars.
A useful avenue into the day’s proceedings was the BFA’s ‘Introduction to Franchising’.
An Introduction to Franchising and the BFA
The BFA, or the British Franchising Association, is the industry’s accrediting body. They help franchisees discern a trustworthy, reputable franchisor from those who aren’t so respectable. Franchisors have to meet extensive criteria and pay a fee to become BFA members, and by so doing they prove their standing to incoming franchisees.
So who better than the BFA to put together a ‘how to’ guide for those who are unfamiliar with the franchising landscape?
The BFA’s Andrew Quail was the seminar’s compere. Andrew introduced the talk and provided links between the three expert speakers.
However, before we introduce the speakers and their advice, there was a piece of advice that was shared by both Andrew and Tom of the BFA, and by all three of the keynote speakers:
"If you’re an innovator with an entrepreneurial spirit, don’t become a franchisee. Franchisees must play things by the book as, by definition, successful franchisors already know what works, they don’t need you to tell them."
The first presentation came from Lorna Smith, HSBC’s Senior Franchise Manager.
Franchising and Banks
Lorna opened by stating that she was there to explain why banks love franchising. Banks look favourably upon lending to franchisees because the startup risk is negated by the franchisors’ proven and developed model. Unlike a completely ‘new’ idea from an entrepreneur, a franchisor’s business plan comes tried and tested. Think McDonalds!
However, this does not mean that Banks hand out loans to franchisees at the tip of a hat. Banks like to understand how a franchisor is going to train and develop its franchisee. If you are taking-on an established franchise, the bank may already be familiar with these details. If you choose a ‘new’ franchisor, there are steps you must take.
Lorna recommends that you ask relatively ‘young’ franchisors about their pilot model. You want proof that their model is a franchisable business - rather than a concept that merely works for them in their location and ‘may not’ succeed anywhere else. Look for proven replication, not experimentation.
Lorna went through the fees that franchisees will be expected to pay. She did this as franchisees must present a two-year business plan, including a marketing plan, a statement of assets and a borrowing forecast before they secure funding.
The startup fee comes first and is self-explanatory: a sum, decided by the franchisor, that you pay in order to startup.
There will also be an ongoing management fee. This is usually a percentage of profit that goes back to the franchisor. Banks prefer the management fee to be a percentage of profit as this displays, on behalf of the franchisor, the healthy expectation that you will make profit.
Franchisees are often expected to pay into a pot that funds national advertising. Whether this is required, and the size of the amount, differs from one franchisor to the next. A widely-applicable expectation is that you must set-aside funds for local advertising.
Lorna explained that for proven franchisors such as McDonalds, banks would fund up to 70 percent of startup cost. For unproven franchisors, this percentage will be less. Banks will also take security on your loan. They see this as your commitment to your franchising success. If you don’t have enough equity in your home to use as Security, you may be able to secure a Enterprise Finance Guarantee from the Government against which you can secure your loan.
Franchising and the Law
Andrew Hayward of Owen White Solicitors spoke next on the legal aspects of franchising.
The first thing that Andrew made clear is that the franchisor-franchisee relationship is not a relationship of equals: you follow their rules.
Andrew also echoed some advice that had been touched on by Lorna. When speaking to a franchisor, speak to as many of their franchisees as possible. Speak to successful franchisees, and to those whose results aren’t as good. If the franchisor is unwilling to put you in touch with a broad-sample of franchisees then you should wonder what they are trying to hide.
When it comes to marketing and advertising, all franchisees have a ‘territory’ of which they are in charge. The words ‘non-exclusive’ and ‘exclusive’, when relative to territory, have no fixed meaning in law. Read the small print.
Another thing that Andrew made clear is that your ‘term’, ‘Five years’ for example, is fixed. If you sign-up for five years, you will fulfill a five year commitment. You must be aware that franchisees do not have an employee’s right to leave.
At the end of your fixed-term, you ‘should’ have an option to ‘renew’ your franchise in your contract. If this option isn’t in the small-print then this is an issue to raise. Also, cross-reference everything that your franchisor mentions with the small-print in your contract - as the small-print rules over all.
Also, Andrew recommends that you perform a legal checkup on your franchisor. Do they own the rights to their own logo and brand-name? If the franchisor has a bigger organisation behind it, what is their state of affairs? Is the franchisor tied to the larger organisation for a term that is shorter than your ‘term’?
Research what would happen if you were to die or become permanently incapacitated. Some franchisors will charge a large sum to bring in a manager during the course of your illness, for example.
If you have a cunning plan to learn the tricks-of-the-trade from a franchise in order to set-up your own operation to compete against it, think again. Many franchisee-contracts mandate that, if you are to leave the franchise, you cannot undertake the same type of work in the surrounding area.
Trevor Brocklebank of HISC UK: The Franchisors Perspective
Trevor Brocklebank of Home Instead UK was last to the stage, he gave the collected audience the franchisors view.
Trevor opened by saying that franchisees don’t need to find a ‘good franchise’, they need to find the ‘right franchise’. No matter how successful McDonalds is, if you’d be unhappy in the job, you may well be more successful in another franchise.
The decision to become a franchisee (rather than an employee) is a massive one. Trever reinforced this point-of-view by reminding the audience that in three months time, they could be a franchisee. They would have risked their life-savings starting up, they will be on a huge learning-curve and they’ll be working extremely hard.
However, it isn’t all doom and gloom. Franchises have an extremely low failure rate, especially when compared to entrepreneurial startups. If you’re happy, and you work in a franchise that you care about, becoming a franchiser can become the best life-choice that you’ve ever made.
Franchisors in attendance
As well as attending other seminars, such as those given by McDonalds’ Richard Forte and another lead by Will Chase of Tyrrells Crisps and Chase Vodka, we took to the exhibition floor and met the franchisors.
I spoke to: Chris Clarke
What: Tea, Coffee, Biscuit and seasonal gift retailers that deliver to the customer’s door. They have been doing so since 1907
More: Ringtons’ unique selling-point is that they deliver directly to their customers. They build a face-to-face, persona relationship with their customers that sets them apart from supermarket culture. Franchisees make a profit on the goods that they sell, and receive training from the nationwide Ringtons team.
Who: Leisure Leagues
I spoke to: Lee Wilcox
What: Leisure Leagues operate five and six-aside football leagues across the UK and Ireland.
More: Leisure Leagues offers not only five and six aside football, but their fully interactive website transforms the five-a-side experience. The ability to upload a player and team profile gives participant-players that Premier League feeling. Franchisees pay a larger startup fee if the league is already established, smaller for virgin territory. Leisure Leagues take three pounds per week, per team that enters. The weekly charge per-team is set by you, the franchisee.
Who: Go Cruise
I spoke to: Geoff Rigeon
What: A travel-agency that specialises in cruises.
More: I was told that cruising is ‘the most lucrative part’ of the travel industry. Go Cruise allows franchisees to sell ‘over 100’ cruise deals to their customers. They also offer a huge marketing, support and training infrastructure.
Who: Bar Sport
I spoke to: Scott Murray
What: Sports Bars (not a pub lease!)
More: Scott was adamant to tell me that this was not a ‘lease’! There is no leasing involved at all. The franchisee owns the property, it is not tied to a brewery. Also, even though Bar Sport recommends suppliers, the franchisee is not tied to them. Therefore, they are not tied to the prices set by a brewery’s chosen-supplier, for example.
I spoke to: Richard Forte
What: Global fast-food brand
More: McDonalds asks for a large commitment, both in terms of time and finance. However, if you’re a good franchisee, the earning potential is excellent. With the weight of a global brand behind you, becoming a McDonald’s franchisee can be a life-changing decision.
The expo was extremely informative. It allowed prospective franchisees to leave with all of their questions answered. Tina Hand, who has recently been made redundant after 30 years in banking, praised the BFA. Tina told us that she ‘had more confidence in the exhibits’ due to the BFA’s involvement. Sajad Khan enjoyed the ability to swap ideas with franchise-leaders. Sajad said that the ability to ‘meet face to face’ with McDonalds was invaluable. Rodney Agomtar retired after a successful career and now wants to franchise. The BIFE gave him a much better ‘understanding of how the market operates and what is available.’