January 2009 Archives

"It is our responsibilities, not ourselves, that we should take seriously."

—Peter Ustinov (British Actor & Writer)

Ever wondered about the history of franchising? Below is some of the back-story:

The word franchise comes from the old French meaning, privilege or freedom. In the middle ages, Kings would grant franchises to select subjects, for all manner of commercial activities, such as building roads and brewing ale. Essentially, the King would give someone the right to a monopoly for a certain type of commercial activity. Over time, the regulations governing franchises became part of European Common Law.

In the 1840's in Germany, certain major ale brewers granted franchises to certain taverns, giving those taverns the exclusive right to sell their ale, essentially starting the concept of franchising as we know it today.

In 1851, Isaac Singer invented the Singer Sewing Machine. During his search for an effective and affordable way to distribute his product for his company, the Singer Sewing Centre, Singer ran into problems that prevented his company from becoming successful.

Singer faced two specific problems. Firstly, he had a lack of capital to invest in the manufacturing of the machines. Secondly, no one wanted to purchase a machine they did not know how to use, and mainstream retailers were not interested in investing the time to train purchasers on how the use the merchandise. Singer's solution was to find individuals who were willing to purchase licensing fees that would give them the right to sell the sewing machine in exclusive geographical areas. These individuals were required to train their purchasers on how to use the sewing machine, thereby creating new sales opportunities. From this solution, Singer was able to apply the licensing fees received to the manufacturing of machines that were shipped directly to his licensed distributors.

Other companies took notice of Singer's concept, and over the course of several decades, developed the methodology to enhance their own business models. Coca Cola, and their franchising of their bottling and manufacturing of their soda in the late 1890s is an example of this.

"The most successful people are those who are good at Plan B."

—James Yorke (Mathematics & Physics Professor)

While the British Franchise Association is the largest and most successful franchise association in Europe -- it represents less than 50% of the UK franchisors. Thus, in 2008, the organisation which was established in 1977 published a consultative document titled One Vision with the express purpose of engaging the franchising community on how to become a more representative organisation.

The aim of the publication was to kick off a strategic review as the British Franchise Association would like to be recognised as the authoritative voice of UK franchising and as such, needs to figure out ways to get more franchisors involved. In addition, the organisation needs to be more inclusive and begin to represent the interest of franchisees as well as the specialist professional advisors (consultants, lawyers, accountants, etc) involved in franchising.

Beyond being more inclusive, the objectives of the strategic review are to determine best ways:

1) to set standards with Members for ethical franchising; secure adherence by members of those standards; and promote their adoption by non-members within the franchise community
2) to promote, in partnership with Members, positive awareness of ethical franchising amongst the general public as prospective franchisees and as consumers and amongst employees in the franchise community
3) to promote and protect the reputation of franchising with government, business, academia and the media
4) to secure in the UK, and help secure in Europe and the world, a legislative and regulatory environment for ethnical franchising which encourages its profitable growth
5) to operate with funding from, and for the benefit of, the community of Members as a whole with equity, integrity and efficiency through representative and transparent governance

Recognising that there are inevitable challenges with changing the status quo, the task group solicited feedback via an online questionnaire. The proposed changes were also presented at the Association's 2008 Annual General Meeting in December. Thus, it is expected that depending on the level of consensus, new articles for the association would follow in 2009. So stay tuned. In the interim, you can download the One Vision consultative document from the British Franchise Association Internet site.

Results from the 2008 NatWest/BFA franchising survey confirm that there are approximately 809 active franchise businesses generating £12.4Billion in revenue. Surprisingly, only 324 systems (40%) are active members of the British Franchise Association (BFA).

Of those franchisors that are part of the BFA, they are governed by a code of ethical conduct which comprises the European Code of Ethics for Franchising and the BFA's own "extension and interpretation" of the code.

The European code came into effect in 1972 and was drawn up by the European Franchise Federation (EFF), the trade body of the national franchisors' associations within Europe. Each country has the opportunity to add its own extensions and interpretations, subject to the approval of the EFF.

Visit the European Franchise Federation Internet site, to read the full text of the European Code of Ethics for Franchising. For the British Franchise Association Code of Ethical Conduct: Extension and Interpretation, go here.

Below is an excerpt of an article I wrote for Women Unlimited on how to finance a franchise business.

Banks Will Lend 50-70% Needed to Launch a Franchise Business

by Ursula Barzey, Women Unlimited, 6 January 2009

Most franchisors require that their franchisee candidates have a certain level of net worth and liquidity as part of their qualification process. This requirement is in place as bank funding is typically needed to secure some of the money needed to get the business up and running. For example, if opening a retail franchise, a franchisee candidate will need to budget for:

• Franchise Fee
• Opening Cost: Training Course, Operational Manuals, Site Selection, Start-Up Materials, Legal and Management Fees, Build-Out Supervision, etc.
• Initial Marketing Costs
• Store Development Costs: Signage, Equipment, Computers, Fixtures, Displays, etc.
• Initial Inventory
• Other Expenditures: Rent, Security Deposits, Insurance, Licenses, Permits, Staff Advertising, Travel, Accommodations, etc.
• Working Capital: 3 to 6 months

Once you start putting together the budget figures, most franchisee candidates begin to realise that setting up a retail franchise takes more than entrepreneurial verve; it requires a substantial amount of start-up capital to begin with. In fact, according to the 2008 NatWest BFA Franchise Survey, the total start-up cost for a store retail franchise is typically around £160K. The average start-up fee across all franchise operations is £64,900.

To read the article in full, visit the Women Unlimited Internet site.

I just love this video; so inspirational. It advocates freedom through self empowerment.

"For last year's words belong to last year's language and next year's words await another voice. And to make an end is to make a beginning."

—T.S. Eliot (Nobel laureate in literature)

Discover if franchising is right for you, by ordering your free copy of the Experts Guide to Franchising via the FREE Franchise DVD website.

A preview of this DVD is below:

It should be noted that this DVD was created by the MatchPoint Franchise Consulting Network as franchising is the fastest growing sector of the service and retail business world today. Everywhere you look, franchised businesses are visible in the following industries: automotive, business services, food/restaurant, retail, technology, home improvement/maintenance, personal care, technology and more.

Upon studying the benefits of buying and owning a franchised business, it is easy to understand its appeal: an affordable initial investment, a proven track record, an established operating system and the support of a franchisor are all attractice to the prospective business owner.

However, if you are considering purchasing a franchised business, there are several important questions to consider before making a decision. Is franchising the right business model for you? How will you finance your franchise? What is owning and operating a franchise really like? What legal issues are there to consider? Should you use a franchise consultant? These questions and many more are addressed in the DVD which you can order via the FREE Franchise DVD website.

In honour of the New Year, a poem from one of my favourite authors:

Dreams

Hold fast to dreams
For if dreams die
Life is a broken-winged bird
That cannot fly.

Hold fast to dreams
For when dreams go
Life is a barren field
Frozen with snow.

—Langston Hughes(American Writer)