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To franchise or not, that is the question

KFC Bermuda: The Queen Street eatery is a classic example of a franchise

Jamillah LodgeBusiness Buzz is a monthly column presented by the Bermuda Small Business Development Corporation. Every month, read about entrepreneurship, obtain business management tips, and find out what’s going on in the small business sector.Have you ever wondered about starting a franchise in Bermuda? Some people have indicated that it is illegal to do so, but my friends in the legal industry have advised that it is not quite as simple as that.Before we explore whether we can operate a franchise, let’s define it. Dictionary.com defines a franchise as “the right or licence granted by a company to an individual or group to market its products or services in a specific territory”. This definition seems pretty straightforward so why does there seem to be so much confusion behind operating a franchise in Bermuda? I will attempt to answer this question in this article as well as discuss some of the Pros and Cons of operating a franchise.Using the definition of a franchise referenced above, it would seem that people are in fact operating franchises in Bermuda: There are several well known franchises here, including Marks & Spencer, Benetton, The Body Shop, Cartridge World and KFC to name a few. Let me refer back to a conversation that I had with my friends in the legal industry to shed some light on this issue.It is my understanding that any exporter or franchiser must use a local partner or agent (this person would not be considered an employee of the overseas business) if they are considering Bermuda as a potential jurisdiction. In other words, the company still has to be Bemudian owned.Further, franchise agreements are not regulated by legislation but are governed by the agreement that is signed between the parties, similar to a Partnership Agreement. Having said this, in Bermuda there is a general prohibition against fast food franchises. I’m sorry to rain on the parade of all those would be Subway and Pizza Hut owners, but The Prohibited Restaurant Act 1997 forbids the opening of food franchises in Bermuda.Specifically the Act sets out the following definitions:l “Prohibited restaurant” means a restaurant which is operated in any manner, whether through distinctive name, design, uniforms, packaging, decoration or otherwise, which reasonably suggests a relationship with any restaurant or group of restaurants operating outside Bermuda.l “Restaurant” means any tavern, public house or place trading for profit by provision to the public of food or refreshment with or without entertainment.So I am sure many of you have already realised that in my short-list above I have named a food franchise as operating in Bermuda. How is this possible you may ask? The Prohibited Restaurant Act 1997 excludes any operations that started before 10 May 1996. Thus, essentially KFC has been “grandfathered” in.Now that we have an understanding of what types of franchises can be operated in Bermuda lets discuss some Pros and Cons that you may want to consider before deciding to start on the path to franchise ownership.ProsBrand recognition: Many franchises are well known establishments and thus can provide the owner with greater market penetration by virtue of their visibility in the industry. Think McDonalds.Proven track record of success: Purchasing a franchise means that in most cases you are buying a tried and true method of success. The business model has been used time and time again, and research has allowed them to fine tune operations to ensure that new franchisees are purchasing a winning model.Training and development: Most franchises have a well development training programme. Once fees are paid, franchisees get to participate in training that will help them when starting the business and continue to help guide them throughout their tenure as a franchise owner.Increased purchasing power: It is widely known that if you buy in bulk you can get better rates. This is the same for franchises. The parent company has the ability to purchase goods at reduced rates due to the fact that they are purchasing in huge quantities and as a result that savings gets passed on to the franchisee.ConsCost:Some franchise fees can be prohibitive. In some cases to purchase a well known franchise, you can pay in excess of $1 million dollars. For a new entrepreneur, this may not be feasible.Limited creative expression: In many franchise agreements, they include clauses that ensure that you will maintain their brand exactly as they intend. As a franchisee you will have to agree to duplicate the look of the franchise and in some cases you will have to buy all product including fixtures from the parent company.Not all franchises are created equally: Whereas training and development is listed as a Pro, not all franchises are equal when it comes to this. Some will not offer you the ongoing support that you may need to be successful. Be sure to research this before making a decision.Brand recognition: This can also be a con because some franchises are not as well known as others therefore you cannot hinge your success on the name alone. If you are interested in starting a less known franchise, do some research to confirm that there is in fact a demand for the service in Bermuda and weigh all the benefits first.Jamillah Lodge is a Business Development Officer for Bermuda Small Business Development Corporation. She specializes in providing aspiring and existing entrepreneurs with business development advice and loan guarantee assistance. In addition, she manages the marketing and communications plan for the Corporation and oversees the development of a mentorship and youth entrepreneurship programme. She has a degree in Business Administration with a concentration in Marketing. The opinions expressed in this article are those of the writer and should serve a general guide and should not be considered as replacement advice from a lawyer, accountant or other professional service provider. Readers should consult with the appropriate professionals as necessary. If you have questions about starting a business in Bermuda, just ask BSBDC: Email us at info@bsbdc.bm or call 292-5570.