Exploring Auditel – What is a Franchise?
A growing business sector
Franchising has its roots in the USA, where some notable brands have transformed particular industry sectors such as; fast food, retail and coffee, through franchising.
KFC was one of the early pioneers alongside brands such as Wimpy and Dyno-Rod. Other brands followed suit with McDonalds franchising in the 1980’s, and Subway in the 2000’s. Simply put, if you take a successful business and replicate every aspect of it in a different location with a similar demographic, then the results should also be replicated. Franchising is often likened to ‘buying a business in a box’.
Despite the international success of franchising, it still remains a commonly unrecognised and misunderstood format of business growth and ownership, so this content seeks to help you understand what is a franchise actually is.
Growing a Business through Franchising
For organisations to grow, traditional methods of expansion would utilise the profits from successful operation to be reinvested in new outlets, that can take a long time to come to fruition, or to seek more investors, which may involve giving away more of a share of the company that may be desired.
The alternative is for owner-manager investors to ‘buy’ the proven business system, by entering into an agreement to operate the business within the parameters set out by the franchisor in the ‘Franchise Agreement’. For the privilege of operating a successful model, there is an initial fee to cover use of; intellectual property, brand, training, support, R&D and business tools & systems.
These single-unit investors, the franchisees, agree to follow the business system as defined by the Franchise Agreement. On an ongoing basis, the feedback and experience gained by each franchisee will, in turn, shape the future development of the whole organisation – working smarter by working together.
The franchisor’s role is to focus its efforts on enabling each franchisee to maximise the success of their own unit.
How franchising fits Auditel
As well as enabling Auditel to grow a national network, one of Auditel’s biggest competitive advantages is the huge amount of knowledge of suppliers across all industries. With all franchisees helping each other by sharing insightful knowledge about pricing and service levels, Auditel can offer clients an incredible array of expertise. This would not be viable within a corporate structure, where powerful information would be guarded, not shared.
Equally, Auditel would have to charge massive fees – like the typical ‘big 4’ consultancy firms – in order to cover the costs of the high-calibre individuals. These individuals are franchisees though. So as well as extensive knowledge and expertise, Auditel can offer completely self-funding services, making client acquisition much more effective.
Franchising being a two-way partnership means that each franchisee has different objectives for their own business, and these may change over time according to each individuals’ circumstances and desires. Auditel supports each franchisee to achieve what they want from their business, allowing franchisees to have far more control and flexibility than they could ever hope for in employment – plus the benefits of their hard work is almost all their own to enjoy!
Why there is initial investment & management fees
A proven business system – that an organisation has invested heavily in to develop, refine and innovate over time – provides the prospective franchisee a greatly reduced risk of business failure. The British Franchising Association (bfa) reports that where 90% of franchised businesses are operating successfully after two years, over 80% of stand-alone businesses have ceased.
As well as improving your chances of success your investment, a franchise model provides you with a long-term commitment that the franchisor will provide you with ongoing resources to help your business throughout the term of your franchise.
For most franchisors, the initial investment reflects the cost of recruiting, training and supporting each franchisee through the development phase of your business. It is only when the franchisee’s business is successful that both parties are profiting from the partnership. Therefore, it is in the franchisor’s best interests for your business to not just succeed, but to flourish.
As the franchisee’s business grows and succeeds, they pay an ongoing ‘Management Fee’ to the franchisor. As well as the franchisor’s ongoing costs (premises, support staff, R&D, business development, etc.) it is at this point that both parties are profiting from each other.
In Auditel, there is a 12.5% Management Service Fee, but as the business carries very low general overheads, it means that a business with around £100,000 turnover would likely be around 80% net profit for the franchisee!
Franchise Legal Agreement
The Franchise Agreement is the document that sets out the working relationship between the franchisor and franchisee. It is for a defined period (five years is fairly common) and most Auditel franchisees renew their franchise for a further five years, with no renewal fee. Some Auditel franchisees have even renewed for 10 or 15 years!
It would also usually define a territory. Many franchises in domestic services have a geographic territory, but in Auditel’s case, due to the nature of services, there is non-geographic ‘prospect and client’ database to ensure that franchisees are not targeting the same clients – in 25 years Auditel has touched barely 2% of its target client base.
It is very important that you fully understand the provisions of the Franchise Agreement and there are specialist franchise lawyers who can provide a legal review for you. It is also important to understand that the Franchise Agreement is the same for all franchisees, and is there to protect your franchise business as well as the franchisor’s – so it should never be changed or exceptions made.
As a Full Member of the bfa, Auditel adheres to the highest standards of ethics, and has won many awards within the industry as a result. By partnering with a proven, profitable and trusted franchisor in Auditel, you can really achieve the success you’ve always desired.