McDonald's, Abrakebabra, Eddie Rockets - what have they got in common? Yes, they're all popular haunts with late-night revellers craving quarter-pounders, kebabs and cheesy fries. But these fast-food chains have another important factor in common: they all operate as franchises.
Under a typical franchise system, a franchisee buys the right to operate a business format created by a franchiser, such as O'Briens sandwich bars or Zumo juice bars. The franchisee then pays a regular franchise fee, generally in the region of 7 per cent of annual turnover, in return for initial and ongoing training, and sales and marketing support.
According to Michael Bradley of the Irish Franchise Association, franchising is becoming increasingly popular here. The sector has been growing at a rate of 12 per cent per annum in recent years, and there are now 2,450 franchise outlets in the State. "People are beginning to see now that franchising has a better success rate than starting a business on their own," Bradley says.
With 93 per cent of franchises succeeding in the first five years, compared to just 50 per cent of start-ups, it's easy to see the attraction. "They're buying into an established and proven business format, so they don't have to reinvent the wheel," Bradley adds.
"It's much easier to access finance for a franchise than . . . an 'unassisted start-up', because if people are buying into the right franchise, they're buying into a tried and tested model," says Orna Stokes, senior manager at Ulster Bank Business Banking.
The entry cost of franchising can be anywhere between €50,000 and €500,000, and the franchiser or banking partner generally expects people to fund at least 30 per cent of this from their own cash resources, Stokes says.
Franchising sounds great in theory, but how does it work in practice? Two years ago, Gareth Jones was working in a bank but decided that he wanted to be his own boss. He was 23 at the time and had no previous experience of running a business.
When the opportunity arose to buy the Grafton Street franchise of the Bagel Factory, Jones and his sister jumped at the chance. They received training from head-office staff and, within a few weeks, the business took off. A few months later they bought another outlet in Blanchardstown. The pair went on to win the 2006 Franchisee of the Year Award.
Franchising is often associated with food outlets, but there are more than 200 types of franchises in the State. Take Kendelbell, for example, which offers virtual office services to small businesses. Business partners David Kelly and Tom Shanahan had initially considered starting their own business, but instead opted to buy the master franchise rights for the Irish market from Kendelbell in the UK.
"Kendelbell has already developed a business model and, most importantly, it has developed the software systems," says Kelly. "For us to develop the systems would have cost us well into six figures."
But what's in it for the franchiser? Well, it enables them to expand their chain rapidly, and they don't have to risk their own money opening new stores.
Bradley advises that aspiring franchisees carry out thorough research. "Once they do a business plan . . . and prove that the business is viable in that particular location, then they don't really have too many problems."
