We need a hero

At a very tender age I was pricked on the thumb by a stray staple from Baby's First Business Franchise Book and consequently fell into deep slumber.

I awoke decades later having mutated into Franchise Man, dedicated to exposing the fiddles and riddles that abound in business.

Each month I emerge from the cave below Franchise Towers in my fully loaded Ford Fransit. My Lycra suit is emblazoned with the bfaA crest. By my side stands the Franchise Manual Shield and on my head the jet black

Mask of Network Marketing. Meanwhile, in my hand I grasp the three pronged 'Spear of Franchisee Retribution.

My two loyal assistants, Ratman and Bobbin, stagger behind with the massive iron and leather-bound Franchise Agreement, full of spells and incantations that are guaranteed to paralyse the most persistant offender. I bring exposure to all those attempting to cover the true background to their schemes or services.

So what has Franchise Man spotted this month? Across the drawbridge of Franchise Towers has come a veritable avalanche of opportunities. Stupidly he has neglected to send his hard-earned cash for a splendid national franchise opportunity available from a Bangkok Post Box.

Franchise Man was too busy to take buy into an exclusive offer making him financially independent. Why, he wondered, would a man who claimed to be a millionaire wish to part with the secret of success for £79.95 (incl. p&p), rather than make a further million?

So he shredded the 'needs no selling' and 'everyone must have one' schemes.

No one gets rich quickly by turning a business into a franchise. The average franchisor will receive a franchise fee of about £45,000 and continuing royalties of about six per cent of turnover, plus profit on product sales.

Avoid getting excited when you read in the franchise brochure that you can earn a return approaching twice the usual average. Paying about £15,000 to gain you £40,000 is similar in concept to every pyramid scheme. Greed removes your ability to think.

These schemes rely on the constant input of further members. You pay your money over, and when your name reaches the top you come into thousands. To make an income of £200,000 needs 20,001 punters to join the scheme. As the director employing that many employees, I would expect an income many times that level.

Avoid those who use the trap of multiplication - the slippery skill of using mathematical methods to prove that their franchise concept is viable.

The product retails for ten pounds so everyone will be able to buy one. There are 60 million people in the UK, so the total market for our potential franchise network is £600 million.

It's difficult to spot the fatal flaw when the figures are so vast. Despite what they say there is no way that everyone will buy their product. There remains over 100,000 folk who have no television, despite 70 years of production.

It is even harder to spot the false arguments when they bring the figures down to the local level.

There are about 120 postcode areas in the UK where they can open a franchise. Each household in that area would only need to spend two pounds to produce a turnover of £384,000 per annum. It seems a small amount to produce this large figure, and seems within your grasp. It sounds so simple d you are convinced of the potential. It would be a miracle if you could get even 10 per cent of them to open the door when you knock.

Any franchise needs hard work and considerable expertise, plus the commitment to spend large sums supporting local advertising, marketing, distribution and training. You are selling your franchise concept in competition with over 500 other established franchise systems.

And if that isn't enough you could expect to achieve roughly half of your expected turnover in the first period. Anyone who promises otherwise can expect a visit from Franchise Man.

When the door of 'employed' status slams shut and the door of 'redundancy' swings open, you lose more than just a regular salary, you lose your self-respect, your status, your support systems and even a reason for living. Many buy into a flourishing franchise to escape these redundancy feelings. It is seen as a fast fix to replace the world they have lost.

But is it sensible? If you know exactly why you are entering into a three or five agreement, then by all means go ahead. If you are merely franchising to 'do something' then consider carefully.

Cast your mind back to your job interviews during the carefree days of employment. When your new employer offered a job, did they tell you the salary? Did you accept their offer based on this salary being paid every month?

Did they ever ask you to contribute towards their advertising or require a contribution for the equipment you would be using? Did they tell you to earn your own salary by making sales, or tell you that you would be required to pay salaries to anyone who assisted you?

But that's exactly how a franchise operates. The reason for becoming a franchisee is not to buy yourself a full-time job. The reason for a franchise is to gain the advantages of national representation, a proven workable system, and the limited independence of running your own business. You will be required to work just as hard as any other small business owner, but you will have the support of your fellow franchisees and the back up of a fully operational support system.

What Franchise Man can take issue with is what you get for your investment. No one can guarantee the sales. No one can guarantee the profit. What Franchise Man wants to see is a clear indication from their authorised accounts showing how much is actually made by the system.

Each year see an increase in the number of franchises being developed. Some market sectors are ideal for franchising. In fact, the situation is such that many are seen as only operating through this system. Fast food, catering, delivery services, home maintenance and business services are all classic examples.

A business can only be franchised if it offers sufficient levels of profit for both franchisor and franchisee, usually by operating in a specialised market where price is not the main reason for purchase.

Franchising is generally not suitable for those types of business which rely on the skills of the owners, or where mandatory qualifications are needed.

In return for this income the franchisor will accept some loss of control over the brand name and goodwill in favour of the franchisee. Controlling the progress of a franchise is vastly different to operating a business with employees.

A franchise system requires that the parties share the profits, so we must therefore be confident that the sale of the goods or services offers sufficient margin for both. Never calculate the selling price by simply adding your expenses to the purchase cost. The competition will be delighted to undercut even if the market could bear the high cost incurred.

Most franchisees will have an opinion about the introduction to their franchise.

To become a successful franchisor, they must provide sufficient training and expertise to enable an unqualified person to develop the concept into profitability.

They should offer new franchisees a residential training course of sufficient length to cover all the aspects of the franchise. This will include the operation of the franchise concept, the use and purpose of documentation, an element of personal sales skills, a general understanding of the legal, management and employment regulations in addition to marketing, advertising and health and safety.

During the operation of the franchise agreement it is expected that continuing training and updating at an additional charge to the franchisee will carry on. Match this with an annual conference offering a review into past performance, an insight into the future plans, and the franchisor will avoid the complaints that so often arise in the network.

The franchise agreement sets the terms to which all the prospective franchisees are expected to adhere. It should have been prepared with the assistance of a franchise consultant or specialised franchise solicitor. The higher the quality of the agreement, the more likely it is to be complied with. No franchise agreement should appear one-sided, in favour of either the franchisee or the franchisor.

Development of the franchise in the initial stages is one area where some variation of the terms may be acceptable. Franchisors can offer 'development franchises' where, in return for the franchisees assistance in establishing the network, a reduced fee is asked.

The development franchise is used to discover:

• Possible improvements
• Problems arising
• Effective methods of sales and marketing
• Location of area and operational factors
• Staff recruitment, selection and payment structure
• Levels of stock, equipment and staff
• Profitability and turnover
• Legal and regulatory aspects
• Accounting methods and control
• Quality standards and customer service

A new franchisee should not be used as a method of resolving pitfalls. These should have been ironed out during the development stage. It is a prime requirement that the franchisor can prove the viability of the concept before offering the opportunity to invest.

The good news is that 84 per cent of franchisors currently expect to see an improvement in their trading position within the next twelve months. As well as this, 86 per cent of franchisees trading for two years have reported being in profit.

Time for Franchise Man to slip back into the cave.