Franchising: Viable Shortcut To New Business?

Exploring Franchising As a Vehicle For New Business Ventures

Your decision to start a business is the first major step towards attaining the enviable status of entrepreneur. However, a lot of people who desire to own and run a business still have to deal with the dilemma of deciding a viable business option to pursue. Choosing a business type could prove tasking because of the uncertainties of getting a business off to successful operation.

Broadly, the first level of choice may be between starting a business from the scratch (uncharted territory), buying over an existing business or taking a franchise of an existing successful business.

Franchises are not a common feature in the Nigerian business environment, but a few franchise offerings have been identified. If you'd like to give this option a thought but don't know its dynamics, this article provides the introductory framework you need.

Franchising is a business format in which a party, the franchisee, does business under the business name and style of another party, the franchiser. It is therefore a contractual relationship between two businesses. This relationship occurs because both parties realise they have benefits to gain.

How It Works
First, there is a business, already well-established, with a good brand name, still desirous of expanding its presence and willing to do so through outlets operated by other persons or companies, under a franchise contract. This established company is the franchiser. The second party, desires to do business in the business name and business system of the first company. This party wants to take advantage of the established name and market presence of the first company. It also wants to benefit from its well-developed and proven system of business. Usually, this second company applies to operate a franchise of the first company. If evaluated and found suitable by the first company, an offer would be made which states the terms and conditions of operating the franchise. They could then progress to executing agreements and meeting the terms to give effect to a franchise operation. The second company which secures a permit to operate in the name and style of the first company is the franchisee

It is the usual practice that the franchisee pays a fee to acquire the franchise. Continuing royalty may also be paid either in addition to a lump sum or as an alternative. This is normally a percentage of the franchisee's turnover. The franchisee, in return receives authorisation to operate the franchise and is normally assisted with relevant training and technical support. In practical terms, what all this means is that an outlet of the franchisee will appear to be an outlet of the franchiser., though in reality it is operated by a different party, the franchisee. A visiting customer is unlikely to know that the outlet is not operated by the brand-name owner - the franchiser.

So, if you desire to operate a franchise, you have to:

1. decide what type of business you want to operate a franchise in.



2. seek out a suitable franchiser. in that sector (if any). This has to be a company you believe in their performance and prospects, admire the business system and are satisfied they have a good name in the market. You also need to have the resources to acquire the franchise as well as the capacity to operate the business.



3. formally apply to the company to be considered for a franchise and follow the process through to completion.

Benefits To Franchisee
When you take a franchise instead of commencing a business from the scratch, you'll be expecting the following benefits:

• Firstly, you're launching into a business that already has a known name, a business system and a performance track record. This would seem to cut your risk of failure substantially. In effect, you are assuming a much-lower risk than somebody initiating a business from a zero level.



• The franchiser. usually has a standardised training system which is used in training the franchisee and his staff. In effect, you get tutored in the best practices of an already successful business. There are usually procedural manuals, operational checklists and other policy guidelines which provide a framework for your guided development.



• The franchiser. will continue to invest in advertising and promotional activities which benefit the entire brand, including your own operation. In Nigeria, a Mr Biggs franchisee will reap the rewards of the huge promotional expenditure of this conglomerate.



• As a franchisee, you will also expect to benefit on a continuing basis from the overall marketing activities of the franchiser. The latter will usually provide the needed support to grow your market since it has a stake in your success. The franchiser. will also continue to provide guidance and support to help your business get firmly established.



• Overall, the expertise of the franchiser. is available to you and drawing from this strength, your business should enjoy leveraged performance. So you are likely to escape much of the debilitating errors and misadventures of a new business since your operation is guided with a proven system.

What You Lose
Taking a franchise has its costs which you must consider before you jump in:

• They are usually relatively expensive to acquire - nothing like networking market, which is also called personal franchise. While you can even acquire the franchise of a successful USA-based company today, most will cost at least $20,000 in up-front payments; the majority cost much more. Locally, you can check what Mr Biggs charges.



• While you operate you own business, you do not own the brand name. Implications: you cannot follow your instincts and fiddle with things, you cannot sale and generally have limited scope for flexibility.



• In summary, you lose some independence of operation of your business since you must comply with the terms of the franchise. The risk of loss of the franchise should there be a fundamental disagreement should also be considered.

What Factors To Consider In Choosing A Particular Franchise
The International Franchise Association (IFA) of the USA has identified at least 10 points which rank high in your evaluation of a franchise opportunity:

1. The type of experience required in the franchised business (do you have this or hope to quickly acquire it?);



2. A complete understanding of the business (you must be a able to attain this, for success);



3. The hours and personal commitment necessary to run the business (be sure you can devote them);



4. Who the franchiser. is, what its track record has been and the business experience of its officers and directors (you need a solid foundation);



5. How other franchisees in the same system are doing (if others have not fared well, yours may be no exception);



6. How much it's going to cost to get into the franchise (can you afford it?);



7. How much you're going to pay for the continuing right to operate the business (all costs must be sustainable and fair);



8. If there are any products or services you must buy from the franchiser. and how and by whom they are supplied;



9. The terms and conditions under which the franchise relationship can be terminated or renewed, and how many franchisees have left the system during the past few years (fair exit door; a high number of users suggests dissatisfaction);



10. The financial condition of the franchiser. and its system (the fundamentals must be right).

What Franchise Opportunities Are Available In Nigeria
Franchises are common abroad, particularly in the USA and Europe. The good news is that quite a number of them operate international franchises. This means you can acquire such franchise to operate in the local market. The truth, however, is that local franchises are not common. The few identified options are in the fast-food and petroleum marketing sectors.

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