What is franchising?

John Cradden explains how franchising can help your business.

There are many ways to successfully expand a thriving business, and launching a franchise one of the most popular.

It’s a long-established and proven way to grow a business, increase profits and launch a brand on a national scale across multiple territories and countries. It also allows you to expand quickly and at a relatively low cost.

“Nearly half of all active franchise units operating here are of Irish origin, a figure that has grown steadily over the last few years”

The Irish Franchise Association reports that the Irish franchising sector is worth an estimated €2.5 billion, with over 4,000 active franchise units employing approximately 40,000 people in full time jobs. Many more work in the sector part-time.

While these figures date from 2018, franchising has also proven itself to be a robust and resilient business model, even during periods of recession and economic downturn.

Pros and cons of franchising

The benefits for those who want to buy into a franchise are clear, especially for those who don’t feel able to start a business from scratch: the chance to invest in a proven business with a reputable brand, ready-made support network and established target market.

But what are the advantages of becoming a franchisor? According to the Local Enterprise Office, among them are:

  • Low capital investment, as the capital used to expand the network comes from franchisees.
  • Franchisees are likely to be highly motivated to make their businesses successful.
  • The ability to accelerate business expansion without incurring the overheads associated with opening company-owned outlets.
  • High return on investment because of the lower capital outlays required. Although the revenue from franchised outlets is lower than it would be from company-owned outlets, a higher percentage of the revenue is profit.
  • The ability to expand without spreading managerial resources too thinly.
  • The ability to expand your franchise network quickly
  • An easier pathway into foreign markets

On the flip side, there are some disadvantages, such as:

  • Loss of control of the day-to-day operations of franchised businesses
  • Cost and effort in training and supporting franchisees
  • Increased potential for legal disputes
  • Lack of direct contact with customers

Is your business suitable for a franchise model?

The first question for potential franchisors will likely be: how suitable is your business to a franchise model?

The biggest hint will likely be in the business sector you’re operating in. According to the UCD/ Ulster Bank survey from a few years ago, a variety of different types of franchises exist here now: more than half are in the service sector, a third in the retail sector and there are also a significant number of van-based ones.

According to international franchise networking platform Franchise Direct, food, drink and catering businesses tend to be the most popular franchises in Ireland, followed by health, diet and fitness. Business consulting and business-to-business support services are also sectors well suited to franchising.

After that, the sectors tend to be more niche, such as home improvement, education, cleaning and pet equipment, but these are also gaining in popularity here, too.

Another interesting statistic is nearly half (44%) of all active franchise units operating here are of Irish origin, a figure that has grown steadily over the last few years. It certainly suggests that if you have a proven, established business that’s been running for at least a couple of years, the path to franchising may be less daunting that you might expect.

The Irish Franchising Association website poses some useful questions to would-be franchisors, such as:

  • Can your business be replicated and easily taught?
  • Can you produce audited accounts?
  • Can you offer a franchise at a cost that is good value for money?
  • Can you demonstrate a commitment to long-term success?

It also outlines some important steps regarding the development of your franchise, including the need to protect the intellectual property associated with your business model, such as by registering your trademarks.

You’ll also need to develop:

  • Legal agreements that outline the contractual relationship between you and franchisees
  • Operations manuals that detail the day-to-day running of the franchise
  • Advertising and marketing materials and platform messaging
  • The curriculum and content to deliver a good training programme on how to run your franchise

And even once you’ve trained franchisees, they will still need ongoing support and resources from time to time, so you need to be clear as to the level of support you’re prepared to provide.

As part of your research, you should visit franchise shows to get a first-hand insight from those who are already well established. On the legal side, many solicitors specialise in franchising and business expansion and will be able to offer you valuable advice.

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John Cradden
John Cradden is an experienced business and personal finance journalist and financial wellbeing content designer.