Franchise Focus Business News…

An article in yesterday’s Independent newspaper focused on how the fast food giant is weathering the recession. Chatting to CEO Jill McDonald (who took over from Steve Easterbrook in 2006, her name is serendipitous). We’re sharing some of the Independent’s findings  on how the Golden Arches are not only weathering the downturn, but thriving in it.

McD’s have:

• Experienced positive growth for the last 22 consecutive quarters
• Including more than 5% last month alone
• 1,196 UK outlets
• Serve 2.5 million people per day
• Experienced an increase of 90 million visits on last year

A McDonalds Franchise

However the franchise route is narrower with other companies, and requires a large cash investment

In 2006, only 40% of McDonalds were franchise-run, compared to 65% today.

McDonalds open two to three franchised restaurants every year.

As Jill McDonald said in the article “We are inundated and would have 5,000 applicants for one position - it is that sort of scale of interest.”

What McDonalds look for in franchisees is similar to other food and restaurant franchises, although with a larger cash injection.

• Strong people management skills
• Experience running a kitchen
• Understanding of finance

The total cost of opening a McDonalds franchise runs into hundreds of thousands of pounds.

• One off fee - £30,000
• Training courses (can last up to a year) - £5000
• Cost of restaurant (at least 25% must be financed without a loan) £125,000 - £325,000

That’s not it though; franchisees must be able to cover costs like monthly rent of machines and service fees.

Following up from our initial post on “Why You Should Become Your Own Boss”.

So you’ve decided to start your own business, become your own boss and take on the world! Now, you have to assess the type of business model you are going to go with. If you are going to start your own business entirely on your own, this can be taking on a lot of risk. For those who are not ready or perhaps will never want to take the risk of going it alone, a franchise opportunity can offer an alternative option.

What’s the difference?

Deciding to start your own business is a big decision which leads to a series of other decisions which must be made.

A franchise is an entire business model along with a support program and a training system.

A business opportunity in general is the licence to distribute a certain product or provide a certain service but without the same level of back-up, training or support of the business behind the product. A business opportunity can often involve the distribution of a particular product or the licence to deliver a particular service but would lack the business model and support that franchisees benefit from.

Here are the three main areas where franchises differ from business opportunities:

Brand Consistency

As a franchisee, you have a pre qualified interest in your business, as potential customers will already know your business from existing franchisees. Franchises often impose strict guidelines for franchisees on how to deliver their service/product which means that the customers can expect the same service whenever they enter a franchise outlet; it also means that each franchisee is working towards the growth and consolidation of the brand. On the other hand, with a business opportunity, there is often no pressure to operate your business under the same name as other licensees, and you will not have to conform to a particular operating system.

Support

Looking through any of the franchise profiles on our site, you will see that franchises offer a structured approach to ongoing support following the opening of a new franchise business. This can come in the form of top up training for both the franchisee and their employee; regular meetings at head office either individually or as organised general meetings with all franchisees; mentoring programs; and/or on site visits from the franchisor. The franchisor usually has a vested interest in the ongoing success of the franchisee, and so franchises in general will provide a good program of ongoing support to ensure continuing and growing success.

In comparison, a business opportunity does not usually provide ongoing support, or if they do, it is generally not as structured a franchise would be. As explained in the next section, business opportunities do not have as vested an interest in the ongoing success of a business after its initial launch and so, ongoing success will not be as freely available.

Fees

This is one of the biggest differences between a franchise and a business opportunity.

Franchisors often use the line “we only succeed if you do so we are dedicated to your ongoing success” to market their franchise support. This is usually because they charge ongoing fees or royalties, either as a fixed fee or as a percentage of your sales.

Business opportunities however do not charge ongoing fees. The initial start up fee is generally the only fee charged by the business, and licensees will usually just to have pay for replacement products after and occasionally, if relevant, for training for new employees.

Source: Entrepreneur Magazine

Business opportunities can be great for those who want to add a product on to their existing business without the interference from a franchisor, or who would like to “go it alone” with the license to distribute a product or service. A franchise however, offers a lower risk start up, with the security of back up support, mentoring from the franchise and the benefit of knowing that they want you to succeed as much as you do.

This is all just generally speaking, and franchises and business opportunities all vary and there will always be exceptions to the rules. It is always important to remember this, and to always ensure that you carry out an enormous amount of research before investing in any type of franchise or business opportunity. Consulting with a legal and financial professional is extremely important, however at this stage of the business start up process, one of the best steps can be to contact existing franchisees or licensees in any industry and ask them about their experiences.

In a new series of blog posts, we aim to take you from the initial concept of becoming your own boss and starting your own business right through the business start up process and into running your own business, finally winding up with a discussion of when is best to retire and the process of reselling your franchise.

Deciding to take the big leap from going from paid employment to becoming your own boss and being self employed is a huge step; one which should not be made lightly.

Entrepreneur is a big word to use, however it describes quite a substantial section of the UK population who run their own business. According to a report recently published by the Dept. for Business, Innovation and Skills, there are currently 4.8 million private sector enterprises across the UK, employing 22.8 million people. 99.9% of these enterprises are classed as Small to Medium sized Enterprises (SME’s) and account for an annual turnover of just under £1,600 billion.

So why should you become part of the growing group of small business owners across the UK? Here are a number of reasons why:

1. You earn your own income
2. You decide how to run your business
3. You can be proud of your own success
4. The flexibility to work how and when you want to suit your lifestyle
5. Running your own business offers you a new challenge
6. You can’t get fired

A large percentage of young people in the UK dream of starting their own business, however few ever begin to realise this dream. When you look into the amount of support offered by the UK government along with the amount of start up financing initiatives available from financial institutions, starting your own business doesn’t seem as daunting as it may have before.

Some useful resources for small business entrepreneurs include the government’s Business Link website, which is a very valuable resource including everything you need to know about securing financing, support initiatives as well as healthy tips and advice on starting and running your own business. Your local chamber of commerce should also provide you with support and advice on starting your own business.

In the coming weeks, we will list great resources for securing start up financing as well as other outlets and institutions which offer support to small business owners.

Next post in this series will be on choosing between a franchise and business opportunity.