Franchising can be the perfect partnership of those who desire successful growth and those who possess capital and business acumen to take the brand to the next level. But is it right for you and your business?
Statistics from the 2016 British Franchise Association / NatWest franchise survey may persuade you that a franchise could be the viable route to business expansion for you. The survey reveals that the UK franchising industry contributes an impressive £15.1bn to the economy. That’s an increase of 46% over the last decade. Over 900 franchise systems have been identified in the UK with the average turnover exceeding £250,000 per annum for more than half of them.
What’s in it for you?
The industry has proven to be pretty recession proof with the ability to endure even the most uncertain of economic situations. However, the announcement of Britain’s exit from the EU has created more questions than answers for franchisors and franchisees alike. So, what makes franchising an obvious choice in these turbulent times?
To answer this question, we must first consider why businesses fail when times get tough. There are many reasons, but most failures are simply because the business does not have access to enough capital before they reach profitability and achieve a positive cash flow.
The advantage of the franchise model for lots of budding entrepreneurs is clear cut. A franchisor has learnt through trial and error how to run a successful business. By investing in a franchise, the franchisee benefits from access to a thriving brand and proven business system whilst avoiding the pitfalls that the franchisor may once have experienced. Support and training are in place, removing much of the stress and concerns that often come with starting a new business from scratch.
The misconception is that franchising is an easier route to business ownership. While this is true to a certain extent, it doesn’t mean that owning and operating a franchise requires less hard work and dedication than a traditional business. The franchisee is still likely to face challenges during their journey to becoming the boss, and indeed, the franchisor model isn’t right for everyone.
However, franchising continues to be a popular choice with existing business owners too. The model provides the franchisor with a great way for controlled growth. A method that demands less investment capital while retaining full influence over the brand and business systems.
Power over the essence of the business is upheld by incorporating strict rules into the franchise agreement which the franchisee must agree to. As well as signing up to receiving regular financial and operational audits, the franchisee also consents to following the detailed operations manual to ensure that consistency of the brand is maintained.
Of course, responsible franchisors will provide the franchisee with a comprehensive training programme on how the business should be run. As well as this, the franchisee will learn how to recruit and retain quality staff, how to effectively promote the business and how to manage the books. It is this aspect of franchising that particularly appeals to prospective franchisees that may have limited business ownership experience.
Starting a franchise business
There is a well-known saying amongst the franchising community that declares when you become a franchisee ‘you’re in business for yourself, but not buy yourself’. For many people dreaming of becoming their own boss, but held back by fear, this appears to offer the perfect solution. Indeed, for many it’s an ideal way to becoming a business owner.
The benefits of investing in a franchise include having the strength of a recognisable brand whilst working alongside a community of likeminded business owners. Having the support of a larger organisation comes with advantages that smaller businesses may not have the capability or funding to implement; such as advanced technological equipment or large marketing campaigns.
To a certain extent, a franchise business also comes with a ready-made customer base. And even if the brand isn’t that well established, the branding and promotional activity that will be provided by the franchise will ensure that potential customers know about the business.
Finally, there is the supportive community and networking element of a franchise system. This aspect is particularly reassuring for first time franchisees who have the comfort of knowing that they can turn to their peers for advice. Franchisees from within the same brand, running the same business in different areas, may be experiencing the same issues and can act as a valuable sounding board when needed.
But franchising isn’t for everyone. Those with a strong entrepreneurial spirit who like the idea of being creative without having to answer to anyone, may struggle with the concept. And for those that are certain that they can follow a defined set of rules and guidelines, a profitable franchise still requires hard work and commitment. Buying a franchise business is no guarantee of success, but can lead to a rewarding and lucrative career.
Growing an existing business through franchising
For any existing entrepreneurs that are considering franchising their business to expand and develop their brand, there are several criteria that must be met. The British Franchise Association states that a business should be differentiated from competitors’ offerings, credible, teachable and provide an ample return for franchisees, to be considered as ‘franchiseable’.
These required elements are equally important, but the ability for the business to be taught to a franchisee is key. A business may be performing well with the owner at the helm, but when removed from the equation, the business needs to continue to thrive. The business operating system should be easily learnt in a short period of time with robust operational manuals and documentation in place which can be adhered to without difficultly.
Another critical factor to consider is the costs and fees associated with the franchise. The investment should be affordable enough so prospective franchisees can pay for them, but should also provide the franchisor with a profit via royalties and other fees. The franchisor must also prove that the franchisee can make an adequate return on their investment. After all, the reason franchisees go into business is to ultimately make a profit. If this cannot be achieved it will be difficult to recruit and retain quality franchisees.
Despite the level of planning and development that needs to be devoted to turning a business into a franchise, it can be an extremely advantageous and fast way of expanding a business. This is especially true for business owners who lack the resources, time and funds to open several units in different locations single-handedly. Franchising has continued to be a popular growth strategy that has proven to withstand periods of economic uncertainty.
What have you got to lose?
Whatever stage of the business lifecycle you’re at, franchising could be the solution to your problems. Whether you’re a prospective franchisee excited by the thought of owning your own business, or you’re intrigued by the benefits of expanding your business through franchising, there will be an opportunity available for you to pursue.
As with any business decision, choosing to enter the world of franchising should only be done following thorough research and after consulting franchise professionals. Whether the franchise model is for you or not, one thing is for certain; franchising provides a reduced business risk, yet offers significant rewards for both the franchisor and franchisee.