Choosing a franchise: The importance of ethical franchising
With over 900 franchises operating in the UK, it can be hard to know which franchise is right for you. Discover how to find a worthy investment as a franchisee…
With over 900 franchises now operating in the UK alone, the diversity on offer is substantial.
With time, emotion and capital all being invested at sometimes substantial levels, it is crucial for potential franchisees to choose wisely when it comes to finding the right franchise to join.
A significant aspect of a franchisee’s decision-making must involve the way the franchisor operates their business. It’s commonplace to refer to franchisors that are operating the right way, and therefore worthy investments for franchisees, as adhering to the principles of ‘ethical franchising’.
So what does that actually mean to a prospective franchisee, and how does it inform the behaviour of franchisors?
Ethical franchising fundamentals
There are four key elements of an ethical franchise:
- The business needs to be proven to work – not just the idea on paper or in someone’s head – with evidence that the product or service is saleable, and at a level of profit that will sustain both franchisees and franchisor.
- It needs to be transferable and teachable, which means it can be run in multiple locations by multiple independent operators using the same system, brand and quality standards.
- The franchise is structured and operated in accordance with the principles set out in the European Code of Ethics for Franchising, which broadly covers advertising, recruiting and interactions with franchisees. The legally-binding franchise agreement, while weighted towards the franchisor to protect the brand and wider network, must be fair to both parties and comply with UK law, European Community law and the European Code of Ethics.
- All information on the business that is material to the franchise proposition and contract is disclosed without ambiguity to prospective franchisees – and any financial projections and earnings forecasts shall be objective and realistically achievable.
Ethics in practice
Now that you understand the principles behind a good franchise business, one which is worthy of consideration for your efforts and capital, it’s worth discussing what ethical franchising means in reality. Broadly speaking, these are some of the telltale signs every potential franchisee should look out for in their franchisor.
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An established franchise should have existing franchisees that are successfully trading under the system; a new franchise should have at least conducted a pilot operation for a minimum of 12 months before recruiting franchisees – no pilot means no proof that the concept works.
Good franchisors understand the benefits of having well-informed prospects. As well as a thorough understanding of daily operations, potential franchisees should ask any questions they have in order that they understand the franchise’s ethos, sustainability, fees and proposition. Ask for proof that the business can be profitable for a franchisee, and find out what projections are based on; find out about the health and history of the network and the people behind the brand.
It’s perfectly normal for potential franchisees to have to sign a confidentiality or non-disclosure agreement before delving deep into the opportunity on offer; the payment of a deposit is commonplace too. But make sure that it is a refundable deposit, less any realistic tangible costs incurred. And every franchisee should have (and take) the time and opportunity to have their franchise agreement reviewed by a bfa-affiliated franchise solicitor: do NOT skip this step!
Franchising is set up in most cases to allow someone to operate a business in a field in which they have no professional background. There should be sufficient training in place before a new franchisee begins trading to successfully launch – it might be on sales and marketing, administering the business, the systems, technical training – but it must be in place.
Training should not end once the franchisee begins trading. Continuing support should be on hand to the franchisee at scheduled intervals and on an ad hoc basis as required. It’s what your monthly management service fees (MSF, or royalties) entitle you to, amongst other things. Find out what your franchisor is committed to providing.
A franchise must NOT be dependent on selling and re-selling franchises to survive, it should be reliant on the long-term success of its franchisees to make its own profit through MSF. In fact, a good franchisor makes very little or no profit off the initial joining fees, which will mostly cover training costs and admin; that way, it’s encouraged to help its franchisees do well. Ask for a breakdown of the start-up costs, which can vary widely – find out where your money is going, a good franchisor will tell you.
It’s not a guarantee of success – your own hard work is one of the biggest contributors to that – but joining the bfa shows a commitment to providing the right environment in which franchisees can prosper, a stamp that says “we value our business and our franchisees, and their success is our success”. As joining the bfa is voluntary, not legally mandated, it shows that a franchisor is proud of the ethical standards they uphold. Isn’t that the kind of business you should be joining?
Paul Stafford is public relations manager at the British Franchise Association (bfa).