Why Is Franchising So Successful?
Franchising is BIG business in the SME sector – according to a study carried out by the British Franchise Association there are around 1000 franchise opportunities available in the UK alone. Over half a million Brits are currently employed in franchised businesses and the sector generates over £14 billion in annual sales.
Franchising is resilient to economic downturn – between 2008 and 2013, while the economic output of the UK fell by 2.5%, the revenues of franchises actually grew by 20%, showing that franchises are a lot more resistant to economic troubles than traditional businesses.
A proven business model massively reduces the business failure rate – In fact, less than 5% of franchises fail due to a commercial failure, and over 90% are profitable.
The banks like it!! The banks have found that franchising is a good way for them to lend money into the small business market and most of the high street banks have specialist units whose remit is to lend money to franchisees making it easier to raise finance as a way into business.
With these kinds of advantages it is easy to see why franchising has become a much more successful way of running a business. But what are the benefits to you, and to your business?
Although the initial period of setting up the franchise may take some time and financial investment, once you have the franchise model set up successfully the business can take off surprisingly fast. The only limits will be on your ability to train and support all of your franchisees.
Once the franchise system is established the capital required to open each outlet comes from the franchisee (well it is their business) and they employ the staff. In addition new franchisees normally pay an initial fee to the franchisor for all of the start-up support provided and the rights to use the brand.
Higher Levels of Motivation
Franchisees differ greatly in comparison to managers as they have chosen to go into this specific business and have made a significant financial investment – not to mention time and emotion. They are committed to the businesses success locally and are prepared to work harder and longer to achieve this resulting in a more profitable business and higher levels of customer service.
The Big Mac was invented by one of McDonald’s franchisees – it just goes to show that having many committed people at ground levels can inspire new ideas which can take off across the world. With the financial and emotional investment, some franchisees may also want to help expand the business by opening additional outlets, for their own benefit as well as that of the franchisor.
Why Should I Franchise My Business?
While many business types can be adapted to the franchise model, some simply won’t work. Failing businesses, those with control requirements (such as banks), those which are defined to specific areas and those which depend on an individual rather than the brand (like a counsellor) are generally unsuitable. If the gross margins are too small, it is unlikely to be a good idea, and if there is a high skill level that would require a lot of training, it will probably become unprofitable.
In order for your business to be successful as a franchise, it must fulfill the following criteria.
Firstly, the business already needs to be operating successfully. The period of time for which the business has made a profit needs to be at least one year. This profit also needs to be linked to the format of the business, meaning you need to prove that it isn’t a fluke.
The business also needs to be able to work in other locations. Although some franchises are only applicable within the country of their origin, that is acceptable – a business model that will only work in West Birmingham is very unlikely to make a good franchise!
The skills necessary also need to be easily taught. Franchising brain surgery for example wouldn’t be feasible, as the franchisees couldn’t be taught within a reasonable time frame, but most people can be taught how to make a burger.
Although it can be difficult to predict, the business needs to be profitable for both the franchisee and the franchisor. It also needs to be set up with a franchise-friendly culture, with plenty of support.
Why Work With Us?
The Franchise Company was established in 1991 by a group of successful and experienced franchisors. We understand franchising from our own experience of developing and running franchise systems. We are members of the British Franchise Association and work in accordance with their Code of Ethics. This means we are perfectly positioned to help you to become a franchisor member of the BFA and support you through all of the stages of developing your business as a franchise both within the UK and internationally.
We have close relationships with the franchise units of the banks and can support you to seek support from them for your franchise model once it has been developed.
As a business we have a huge amount of franchising experience across a very wide range of sectors. We want to help you set up your franchise with longevity in mind, to ensure that you get the best return for your investment and achieve long term success in franchising.
Although franchises have a fantastic rate of success, it is also easy to get them terribly wrong if you try to cut corners or overlook steps. Never work with a franchise consultancy that isn’t a BFA affiliate – it may be cheaper initially but you have a much higher chance of failure and some legal issues may arise later on. Franchising isn’t a quick fix – it’s an investment and a strategic long-term plan.
We can help you along every step of the way, from initial assessments of whether your business would work as a franchise, to drawing up a comprehensive operations manual, to the quality standards you would expect. Plans need to be detailed to show how the set-up will happen, what the initial investment will be and how to conduct operations into the future.
You also need to organise a training programme, which we can help you with. It’s often very useful in these circumstances to have someone who knows the franchise world inside and out, and can judge whether your plans are feasible. We will also massively reduce the risk of anything going financially wrong.
Franchise agreements can be quite lengthy and complicated pieces of writing, as they need to be completely comprehensive and take into account a wide variety of situations. This step can’t be rushed, as franchise agreements are set out to protect you, the franchisee and the brand. We’re happy to take you through every step as slowly as you need so that you understand all the workings of your new franchise.