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Franchise offers business opportunities in recession

Written by: Nick Strong

Article Overview: As the recession bites, many large chain businesses are focussing a fresh at business format franchising. Franchise ownership offers large chain corporate businesses many potential advantages. In this article Nick Strong looks at some recent activity in the market place.

Franchise offers business opportunities in recession

The Chief Executive Officer of McDonald's Jim Skinner is recently reported to have said "Worldwide turbulence is barely affecting our business. We are growing worldwide, especially in Europe where we have significant gains at the moment."

While the McDonald's business remains strong in recession some businesses are suffering and looking to franchising for answers. Interestingly Yum! brands which owns Pizza Hut, KFC and other brands is looking to its franchise ownership to right its decline in sales performance.

Yum! Brands will eliminate hundreds of corporate jobs as part of an ambitious re-franchising program. The company, which posted a 16% drop in U.S. operating profit for the third quarter, plans to cut its ownership of Pizza Hut and KFC units to 10.

So why do businesses focus on franchising?

Franchisee can often be highly motivated. Owning a franchise outlet means that you personally invest into the franchise brand and build your outlet as your own business. Because of this fact most franchisees work long hours enthusiatically and are very focused on customer care. This in turn yields results in terms of happy customers, recommendations and strong repeat business.

Additionally franchisee ownership removes the capital burden from the owner company. The alleviation of capital cost via franchise ownership helps the owner company by lowering its operating costs and need to access cash for working capital. The risk is spread and the benefits of operating the brand is shared.

Now therefore may be a great time for businesses and individuals to look into franchise business investment and development. The leading banks are still keen to lend money to new and existing franchisees as the success rates are very high.

So what do you need to consider if you want to buy a franchise?

1. Take a critical look at your strengths and weaknesses – are you sure you have the capacity, temperament and skills to run your own business? Marketing and selling skills are becoming more important in running a franchise.

2. Make sure you have the full support of your family – the additional responsibilities and demands on your time will inevitably cause some strain.

3. Choose some existing franchisees to talk to – don’t just speak to those recommended by the franchisor – and ask how their business is performing and what support and service is being provided by the franchisor.

4. For new franchisors, check they have run a pilot, how long did it operate, is it still trading and what has it achieved in financial terms? If no pilot was operated, how does the franchisor know the franchise and therefore will you be successful?

5. Examine how well known the franchise and its service/product are. A good reputation is a head start in business.

6. Look at the market as a whole – find out who your competitors are and how strong their position is.

7. Examine costs closely, in particular the franchise fee and monthly management fee, and whether they are reasonable and value for money; will the margins be sufficient to support the business after payment of regular fees to the franchisor? As a guide, the average franchise fee is £20,000, although this is skewed in view of a small percentage of higher figures. Ongoing fees average 11.4%.

8. Is the training provided by the franchisor sufficient to enable you to run the business successfully?

9. Seek professional advice from an accountant about income and profit projections and from an accountant about income projections and from a solicitor about the legal agreement. Both should have a good understanding of franchising and preferably be affiliated to the British Franchise Association.

10. Talk to the one of the Franchise Banks for funding information.

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Article Tags: alleviation, business investment, business marketing, chief executive officer, franchise business, franchise outlet, franchise ownership, franchisee, franchisees, jim skinner, kfc, operating profit, owning a franchise, pizza hut, repeat business, sales performance, strengths and weaknesses, success rates, working capital, yum brands



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Re: Info for would be franchisers... - [quote="Sebastien":1d29sdv1]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to. I just want to mention that all these magazines are NOT franchisee oriented. I mean these magazines are for franchise professionals. If you're looking to buy a franchise, you won't find much information in there. To answer your question, getting published in Franchise Times was fairly easy. I don't want to brag too much but I think I am known in the franchise industry. I was the marketing guy at Franchise.com for a few years before joining my new company, the World Franchising Network. So people know me and I have a very good relationship with Nancy Weingartner, the Managing Editor at Franchise Times. I was talking with her at the last Franchise Expo South in Miami and she mentioned she'd like me to be profiled. I was like "ok, sure!". I like this franchise executive profile thing in Franchise Times as it is rarely BS. People are usually really natural in there.[/quote:1d29sdv1] Thanks for the follow up Sebastien! And I can't say that I'm surprised that networking with the right people and managing your relationships with them properly are the keys to being published. I guess the old adage holds true of "it's not who you know, but who knows you" that's important.


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