The changing face of franchising

Sixty years since Wimpy became the first recorded business in the UK to start using the model, franchising is currently in its healthiest ever position. It generates almost £14bn in revenue annually and employs more people than live in Sheffield, according to the 2013 British Franchise Association/NatWest Franchise Survey.
    
Recent growth will have been helped by the buoyancy of entrepreneurial spirit in today’s economy, with a record number of business start-ups last year in the UK. But that’s only one factor. Franchising is a sector that has changed a lot in recent years, with a community of more than 39,000 franchisee-owned businesses operating across multiple business sectors, it has not been reliant on good economic conditions to thrive.

Growing trends
Consistent growth is a trend that has helped franchising reach record levels. Whatever the wider economic weather, franchising has been able to achieve strong growth. It’s no surprise to see it expanding during the largely boom period for the UK of the early-mid noughties – but during the downturn, franchising did something that most sectors couldn’t: it continued to grow. Franchising revenues increased by 20 per cent from 2008 to 2013, during which time the country’s GDP shrank.

From 2003 to 2013, franchising expanded by 42 per cent in terms of its turnover and there was a corresponding increase in jobs created by the sector, with employment in franchised businesses up by 46 per cent to more than 560,000.
    
Additionally, success rates is another contributing factor in franchising growth. Each year, for more than 20 years consecutively, approximately 90 per cent of franchisees have reported profitability; and less than five per cent of franchisee-owned businesses have closed due to commercial failure. Both those trends held true in each year of the downturn.
Because franchising is based on replicating proven businesses, it’s been able to consistently achieve a statistically better chance of success than going it alone.
    
However, it’s important to note that it’s not for everyone. Franchisees follow systems, and if you’re looking for complete control over every aspect of operations then becoming one is probably not right for you. Success rates have been maintained because franchisors understand that, and so do the most free-spirited entrepreneurs.
    
Furthermore, there’s a vast choice on offer to prospective business owners regarding the sector in which they want to operate; where to base themselves; and the number of options available.
    
The same proportion of franchises are now run from home as are run from a shop or retail unit (28 per cent). Long gone are the days when fast food and hotels dominated the sector: the number of business sectors and individual brands seen in franchising have both risen exponentially.
    
There are now more than 930 brands using a franchise model across the UK, which is an increase of 34 per cent since 2003. Both B2B and B2C operations are well represented, with a multitude of professional and personal services available to budding business owners.

Surprising franchises
It’s surprising just how many businesses are franchised: most people use the services of a franchise brand regularly, even if they don’t always know it. It might have been the gardening, shopping, a haircut, cleaning the house, taking care of a pet, fixing the car, buying or renting property, caring for elderly family; or professional services such as graphics, coaching, cost management, printing, commercial cleaning, marketing or IT support.

A good illustration is in the number of household brands that have franchises, without being widely known for them.
    
Thorntons, Clarks Shoes, O2, Domino’s, Dyno-Rod, Toni & Guy, Interlink, Marston (e.t.c) that’s just a handful of the national and international businesses that have franchise operations in the UK. And they’re joined by hundreds of up and coming brands, from regional companies just starting out on their franchise journey to those on the way to joining the above list in the future.
    
Lastly, the fact that franchising is open to all has helped franchising reach record levels. At various times in recent years the spotlight has focused on different demographics of business ownership – women, the young, ‘olderpreneurs’, those made redundant and so on. Franchisors were quick to recognise the value of multiple demographics a long time ago: put simply, there are a lot of different businesses looking for different personalities and passions to take on their franchises.
    
The young are valued for their enthusiasm, creativity and determination, and the backup and support of a franchise is perfectly suited to plug any gaps in knowledge or experience they have. The reverse is true for those entering the sector at a later age, when expertise and skills gained over a career can help shape the business model and provide valued input and a mature outlook. The mean age of all franchisees is around 47 years old, but more new franchisees are aged under 30 than over 50, so there’s a real mix.
    
Women have been well represented in franchising for some time, and it’s a trend that continues to grow. In 2003 there were already the same proportion of female franchisee business owners as there are in the wider economy today, so it’s no surprise that by 2013 franchising was way ahead of the curve on this front – with 30 per cent of franchises run by women, a figure that has risen steadily over the last decade.
    
Franchising can be used to secure a long-term future, or as a lower-risk way for people looking to start a business and gain experience before possibly going out completely on their own. Its flexibility to do both is part of the wide-ranging appeal.
    
So what are the first steps for someone looking into becoming a franchisee?

Honesty is the best policy
This old adage should be at the forefront of your mind from the outset. Start with plenty of introspection – careful thinking here can pay great dividends when it comes to looking at the possibilities on offer. Take your time. Here are some areas to focus on:
    
Take time out to list what your skill set can bring to the table. Franchising revolves around transferrable skills – because a good franchise offers substantial initial and ongoing training and support, the overwhelming majority are suitable to people with no prior professional experience in whatever industry the franchise is in.
    
So consider your top skills – which might be sales, administration, business growth, getting hands-on in a business, marketing, people management, networking – what do you do best?

Personality
The type of person you are can be crucial to your business’s outlook, so personality becomes a significant factor. Are you outgoing or introvert? Naturally adept at working with and leading teams, or better on your own? What are you passionate about? Looking honestly at your own traits can give you good insight into the type of operation you’re likely to be successful with.
    
Combining your personality traits with your skill set can give you a powerful indicator of the franchises that are right for you. Think carefully about them. Finding a business that plays to those strengths will greatly improve your chances of success.
    
What is your driving force? First, think about what kind of operation you want to run. Do you want to be hands-on, or a business manager and developer? Out on the road or working from home? Is potential profit the most important factor in your decision-making, or is a better work/life balance higher on your priorities?
    
Second, the ‘why’: take time to understand what’s driving you to want to become a business owner. Are you tired of working long hours for the reward of others, is it succession planning for your kids, to be a part of your local community, to have control of your own professional life, to take home more money.

There are a plethora of reasons that bring people into franchising. Knowing what yours are is important in determining the franchises on the market that can give you what you’re looking for.

Finances
Finances should not be overlooked. Work out what how much you are willing to invest. There is a huge range of start-up costs to suit almost every budget, from a few thousand up to hundreds of thousands, but before you fall in love with an idea it’s important to know the ceiling of your liquid capital combined with any funding you can access.
    
To calculate that, work out how much you have to invest in the franchise; then consider your funding options, which can add substantially to that figure. By far the most popular option is bank lending – banks like the franchise model because they can access historical data from already-trading franchisees – with other sources including family and even franchisors, a few of which will finance the cost of starting up over a period of time for the right franchisee.

British Franchise Association (bfa) member franchises are looked upon favourably by the major banks, because they understand the strict criteria involved in gaining bfa membership – which includes proof of the financial sustainability to support a network properly, and evidence of previous franchisee success. For franchisees of such reputable, ethical franchisors, banks will typically lend up to 50-70 per cent of the start-up cost, depending on how long they’ve been trading.
    
As an example, if you have £10,000 to invest, then with an established brand you can own a franchise with a total start-up cost of approximately £35,000 (around 70 per cent bank funding). For a newer brand, it might be more like £20,000.
    
You must take your personal life and the circumstances of those around you into consideration; discussions with your partner and/or family are crucial, you will need their support when you take the leap into self-employment and many franchisors will want to see that you have it.
    
Think about what you want to get out of the business and how it might impact those around you. Some franchises (at least in the early days) require more than a 9-5 undertaking, while others are set up for parents and fit perfectly around a young family and the school run.

Be prepared to keep up with the business demands and know that you can do so around your other commitments.

Further information
www.thebfa.org