The Franchise Opportunity in Financial Services

© Can Stock Photo / kentohIf you take a survey of people on the street to name a franchise, not only will you probably get a 100% response, but you will also probably get the same response from the vast majority of individuals. That response being a certain fast food outlet that has golden arches in its logo.

The days of only fast food and automotive repair shop franchising are long gone. In the franchise world today we see a veritable plethora of opportunities for would-be entrepreneurs and others looking for new career opportunities, and quite often they are not what you would expect to find as a franchised business. The range of franchise possibilities has moved well away from the storefront option, and into the single employee home-based area. Franchising now also covers intangibles and services in much the same way that it did when fast food dominated the marketplace.

As with most things there are many different definitions of franchising – but in essence, it is a written-down system that covers the operations of a specific business in such a way that that business can be replicated in various locations. The number of franchise options in North America at present is numbered in the thousands, and many of these franchise organizations have a long and stellar history behind them.

The financial services industry has also played a significant part in the franchise industry growth over the past few decades. The Interface Financial Group (IFG) providing their invoice discounting service was undoubtedly the pioneer in terms of a franchised approach, followed by factoring. Both of these areas are now well-established and offer both domestic and international networks for their clients and franchisees.

The benefits of a factoring or invoice discounting system under a franchise umbrella are substantial. These benefits generally extend to both the franchisor and the franchisee, along with the client that they service. One of the primary benefits accruing to the client is that they tend to get local service under a franchise arrangement. In a non-franchised situation, service would normally come from a centralized head office location that may well be thousands of miles away from the client location. Having the opportunity to deal with their financial source on a local basis adds considerable value to the relationship.

When we talk about franchising for both invoice discounting and factoring, many people assume that this is just an extension of a branch network system. The factor has now established ‘representatives’ in various locations, and hence the local connection. It should be remembered that in a franchise model, the franchisee is a principal in the business and not a representative or agent of head office. As a principal, the franchisee invariably has a financial involvement in each transaction that is undertaken with their clients. Needless to say, this is a radical shift from the representative concept.

For individuals looking to become franchisees that have a strong aptitude for this type of business demonstrated by previous experience in the financial services and banking industry, the opportunities to grow and run their own business under the franchise umbrella are substantial. Needless to say, potential franchisees will be making a financial commitment and, as with all franchise operations, will need suitable financing in order to engage in the business.

Benefits that accrue to a franchisee in a factoring or invoice discounting model are similar benefits that would accrue in any franchise. The first and probably most important is that there is an established system — a written-down procedure and some substantial history to rely on. There is no need for a franchisee to consider having to ‘reinvent the wheel,’ and certainly they can avoid significant setup costs in terms of legal and documentation issues because all of these are handled by the franchisor, and will certainly be in place as and when a franchise is awarded.

In addition to documentation, there will also be an established back-office system in place that will relieve the franchisee of having to organize their own system and procedures. Again, that back office system will be a tried and tested method that will, for the franchisee, eliminate much of the paperwork burden of running the franchise. Technology plays an ever-increasing part in the business cycle today and, as such, investment in necessary technology can be an expensive and time-consuming item. Under the franchise model, such time and expense are usually for the account of the franchisor and, again, the franchisee merely benefits from the provision of those services.

From a franchisee’s point of view, becoming a franchisee in the factoring and invoice discounting area is often a ‘turn-key’ situation. The operation of a franchise does not necessarily require an office location – this can be a home-based opportunity, again reducing overhead and cost. Likewise, the employment of staff to run the business will be negated as the franchisor will be providing the back-office services that would otherwise have to be carried out locally. From a marketing point of view, because this is a turn-key situation, the franchisor will be in a position to provide direction in terms of the desired marketing approach to build the business – again, based on many years of experience.

As with almost all franchise systems, extensive training will be provided before the doors are opened for business. Franchisees will be required to undertake a course of study and training to equip them with the methodology and approach that the franchisor has developed. Once the initial training is completed, the majority of franchisors provide ongoing coaching and mentoring programs to ensure that franchisees get the very best start possible in their new venture.

For individuals who feel that this is the type of business that would suit their background and ambitions, they should carefully investigate all of the franchise opportunities that are available, and perhaps even those that are outside of the financial service area to ensure that they complete a thorough investigation of the franchise marketplace. For many people, franchising is still a new and untried approach. It is, therefore, essential that an individual understands the relationships involved in a franchise award. A franchise is not something that can be purchased ‘off of the shelf.’ It is, in fact, an award, and franchisors are careful in terms of their selection of franchisees as they are entrusting them with the care and promotion of their particular brand.

Franchising has certainly moved on from fast food and automotive products, and extends into hundreds of different industries and services. Factoring and invoice discounting represent just one particular direction, but both of those services are now very well-established with franchising models. IFG, as an example, has grown from a ‘one office-one location’ operation to an International organization offering its brand in nine countries around the globe. A financial service franchise of this nature can certainly represent a ‘win situation’ for the franchisor, as they can develop their network on a much-expanded local basis; it can represent a ‘win situation’ for the franchisee, as they acquire the knowledge and background of an established business that they can operate in their own area; and from a client’s point of view, it offers a local contact and an opportunity to do business with a person ‘across the desk’ as opposed to across the country by telephone or email.

Franchising adds a new dimension to both factoring and invoice discounting, and offers extensive opportunities for would-be entrepreneurs and others seeking a career change who could see themselves benefiting from a white-collar franchise opportunity.