Coming up with an original idea isn’t the only way to become a business owner. Franchising can be a cost-effective way to start a business.
Franchising is the granting of a licence by one person (the franchisor) to another (the franchisee), which entitles the franchisee to trade as their own business under the brand of the franchisor while following a proven business model. Some well-established franchises in Ireland include McDonald’s, SuperMac’s, Fastway Couriers and The Zipyard, a firm specialising in clothing alterations.
There are plenty of advantages of becoming a franchisee:
- You don’t need to come up with a new concept or idea. Someone has already got the business off the ground and it is making money.
- Larger franchise companies will often have well-established ad campaigns in place, as well as an excellent reputation.
- Good franchisors will offer extensive training programmes across all functions of activity.
- All franchisors will provide current operational guidelines in the form of a manual to serve as a reference for franchisees.
- Some franchisors will help you to secure funding for your investment. This may also take the form of bulk sales discounts from suppliers with whom they already have a relationship.
- Customers realise that franchises offer excellent value for money and consistent service quality.
- Consistent support is provided by franchisors, and they may help you to find and fit out premises.
- You collect all income from your outlet, paying the franchisor through franchise fees or a markup on sales.
To be considered as a franchise opportunity, a business will need to be profitable. The franchisor will need to generate enough profit to cater for both you and themselves.
Franchising disadvantages
- Your franchise will never be truly independent. Restrictions include the products or services that can be offered, pricing and geographical location.
- You must pay fees on an ongoing basis.
- You must balance the restrictions of running a franchise with your management demands.
- Any reputational damage suffered by a different franchisee may affect your business.
- The term of the franchise is usually limited, over which you may not have any control.
Franchising in Ireland
The franchising sector in Ireland is significant, with over 300 active franchise systems boasting an annual turnover in the billions of euro, and employing approximately 40,000 staff. For more details on franchising in Ireland, see the Irish Franchise Association’s website.
As a franchisee, you finance your own outlet. You meet the costs of your own franchise and collect income, while the franchisor receives either franchise fees or a mark-up on products sold by you. Costs vary depending on the sector and how profitable the business is, but research has shown that initial franchise fees in Ireland start from approximately €20,000.
Costs of a franchise
The cost of securing a franchise will depend on a number of factors, including:
- How established the franchise is. For example, a McDonald’s franchise will cost more than a new franchise.
- The size of the territory. How large is the geographical area for which you’re buying the rights?
- The type of franchise. Retail or service franchises, for example, will be expensive.
- Do you need equipment? Some franchises require the purchase of expensive equipment while that’s not necessary with others.
- How many units you will be buying.
- What the franchisor is giving you in return. The more you get, the more you’ll have to pay.
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