What makes a franchise ethical?

So you can see the potential in franchising and would relish the opportunity to be your own boss.

With a diverse range of franchise opportunities available in the UK, how do you decide which is the right one for you? Part of your decision making process should include evaluating the way that the franchise is run. Importantly, does the franchisor operate the franchise ethically?

Here are five things to consider when evaluating the ethos of your chosen franchise:

1. Does the franchise work?

Are there franchises operating under the system? It is important to find out if there are existing franchises and where possible, speak with franchisees and find out their opinions about the system.

Don’t just speak to the franchisees suggested by the franchisor, do some digging and speak with others, so that you get a good overview of the business.

If there are no franchises operating, then is there a pilot system operating to provide you with evidence that the system works? Finding the evidence now will mean that you are more likely to succeed further down the road.

2. How does the franchise operate?

The franchisor should be able to answer your questions openly and honestly. Be sure to ask for proof of profitability, question the health of the business and get to know how the brand operates.

You should be able to find out about operations, fees and business proposition.

Bartercard franchisee, Chris Edworthy stresses the importance of a proven business model and solid support network,

“The fact that they [Bartercard] believe in their product enough to franchise and have the support in place. If I’m going to invest the money in their business, then they will be 100% behind me.”

Before you sign the Franchise Agreement, franchisors should disclose the franchise operation manual – this will be your toolkit to understanding the business and provide you with insight into the day to day running of the business.

3. Legalities

It is normal to sign a nondisclosure or confidentiality agreement before finding out in depth information about the franchise. Some franchisors wish to protect information about their business and prevent the information being shared to others.

After signing, you should be granted access to the operations manual. You may also be required to pay a deposit. Be sure to find out if this is refundable as otherwise you may not receive the amount back if you decide not to buy the franchise.

Principles in the European Code of Ethics for Franchising determine how a franchise is run and structured. This details recruitment, advertising and interactions between franchisee and franchisor. The Franchise Agreement must always comply to this law.

What is more, the franchise agreement has to comply with UK law, the European Code of Ethics and European Community Law.

Ensure that a franchise solicitor reviews the franchise agreement before signing to ensure that you are clear what the document entails.

4. Support and training

An ethical franchisor should provide you with sufficient training before you begin trading. Remember, the franchisor is there to help you become a success and expand the reach of their successful brand; it’s a win-win situation.

Jeremy Neil, Director of Driver Hire stresses the how franchising should be a mutually beneficial agreement,

“The franchise model needs to work on both sides. I know that everyone who runs a Driver Hire franchise in the way that we describe it will make a lot of money. The basic premise of you model is that both sides benefit from the deal and the offer is clear.”

Can the franchise model be transferred and taught? If the franchisor expects you to operate in a trade where you have limited knowledge or understanding without training and support, then perhaps reconsider the commitment.

An ethical franchisee should provide some training and support covering some or all of the following areas; sales, marketing, business administration, technical training on the product or systems. If you are paying regular royalties you the are entitled to a level of regular and ad hoc support after you begin trading. This is one of the many benefits of becoming a franchisee.

5. Financial considerations

Find out what your regular royalties and start up costs cover. An ethical franchisor should not profit off the initial fees and instead be invested in your long term strategy for making the business profitable. The initial fee should on the whole cover the costs of starting your business. An ethical franchisor should provide you with a justification of the amount quoted upon request.

Interested in exploring your options? Take a look at the different franchises available.

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Sandy Purewal

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