franchises

The first hard fact about franchises is that they benefit franchisor more than franchisee. The acid test for get-rich-quick schemes applies slightly. If Wonder-Goo is so marvellous that I can make 100% profits selling the stuff, why is Mr.Wonder-Goo cutting me in? The vital difference is that get-rich-quick artists prosper by fleecing franchisees. Good franchising firms profit from the customers.

They use franchising to grow faster by tapping other people's finance. The franchisor also gains from the hard work of a self-motivated, self-managing entrepreneur, while the latter buys into a business which, in the best cases, is backed by national advertising, equipped with efficient systems and complete with a strong customer base.

It should be a win-win situation. McDonald's, say, wins another restaurant to add to its 15,000 (expanding by three a day world-wide) and maybe another £1 million of sales in a year's time. The new franchisee joins over 12,000 colleagues - some 80% of Macstores are franchised. In return for 16% of the take, from £50,000 to £500,000 investment in equipment and décor, and training time, they win a not-so-small business for 20 years - probably a successful one.

If it is, they join McDonald's heroes like Mike Charles and Clive Aronson. Aronson, a trained accountant, expanded from one outlet in Glasgow to three. One, the first 'drive-thru' in Scotland, succeeded (with help from McDonald's itself) after a false start. That experience emphasises that franchise profits don't fall off trees. As with any business, you have to work for your success - and get everything right.

Charles was working for BA when he decided to get a franchise. His management know-how, though, wasn't acquired in the air, but on the ground, at McDonald's management programme. This provides several of the skills whose lack causes small businesses such grief: how to budget, how to understand accounts, how to motivate staff, and how to market. You can't say it's a free education - since you pay for the franchise: but it is education with a prompt pay-off.

Chains with reputation, experience and success even approaching that of McDonald's, of course, are few and far between. But with the UK management planning to expand its franchises to 40% of the total, compared to the present 17%, McDonald's alone will be providing plenty of opportunities. With other possibilities, would-be franchisees want to ensure they get the same high-class treatment. These are some key questions:

What do you think of the product or service? Is it really good - would you buy it yourself?

Will you get high standards of training, guidance and marketing support? (McDonald's intensive four-stage training takes up to eight months full-time, two years part-time)

Did the former franchisee (if any) prosper or perish?

Are existing franchisees happy with the relationship and their results?

Is the franchisor's own company rich, successful and growing?

What happens when you've got grievances?

If the franchisor simply gets the market wrong, so do you - and even McDonald's can stumble over its marketing. The UK boss, Paul Preston, has admitted that a 1991 survey revealed a 'horrifying' gap (since corrected) between McDonald's self-image and the views of those who count, the customers: they thought McDonald's 'loud, brash, American, successful, complacent, uncaring, insensitive, disciplinarian, insincere, suspicious and arrogant.'

The saga of McPloughman's, a cheese-and-pickle variant, was a particular horror: 'Customers didn't want the product and our staff were embarrassed even to have to say McPloughman's.' You can't blame the staff: but you can blame McDonald's for not having researched the product. In the end, the small businessman in the franchise depends on the big businessmen in the head office - so make sure that there's an open channel for your views about any McPloughman of a brainwave.

Finally, never forget the get-rich-quick acid test. If the franchisor is dangling the bait of small risk and tiny investment for a whopping return, run for the hills. That's precisely the kind of offer that comes from a smooth (or rough) operator who is more interested in selling the franchise to you than goodies to the customers. Accept, and you're liable to be sold in more senses than one.