10 Reasons to invest in a franchise
Take your first step to being part of a growing success story
1. Your chances of success are greater
Statistics from the bfa show that just 0.9 per cent of franchisees have closed their businesses because of commercial failure. Compare that to the findings of company formation specialist Turner Little. When it analysed Companies House data, it established that 80 per cent of independent UK companies failed within their first year. In addition, Office for National Statistics figures reveal that only 44 per cent of UK businesses of this type survived for five years.
2. Investors are provided with a ‘business in a box'
The reason for franchising’s high success rate is due to the fact that franchisees are provided with all they need to start, grow and establish their own business under the umbrella of a proven brand, including the all-important administrative and marketing functions. This includes everything from comprehensive initial training to expert assistance in the start-up stages of the franchise. This support continues throughout the lifetime of the franchise agreement and includes face-to-face (often with a dedicated franchisee support manager) and telephone and email contact with head office. The pandemic has underlined the value of the support provided to franchisees. Within a very short space of time following the outbreak of COVID-19, franchisors that were able to remain open adapted their businesses to include only online offerings and new delivery and click and collect options.
3. You can develop a career in a new sector
Because of all the elements outlined in reason two, there are countless stories of people who have left either employed or self-employed roles to start a new career in a sector that they had no previous commercial experience in. In fact, many franchisors prefer to recruit franchisees who have no prior knowledge of the industry in which they operate.
4. When it comes to funding, banks look favourably on franchising
Historically, banks that specialise in the franchise market have tended to view individuals looking to commence a franchise in a well established and proven brand favourably. That’s according to Richard Holden, head of franchising at Lloyds Banking Group.He explains: “If you’re investing in a tried and tested business model and are set to receive initial training and continuing support throughout the life of the franchise from the franchisor and their team, it’s natural that experienced lenders will look more positively at these funding applications than they would with a new, unproven start-up business setting up from scratch that trades independently without these benefits. “The likelihood is that a bank will have existing franchisees of the brand that already bank with them, demonstrating the ongoing success of the business model.
“Having said this, in the current economic climate and with the ongoing challenges of the pandemic it’s vital to thoroughly research the brand and industry sector of your chosen franchise because banks may have concerns about the trading performance during lockdown, whether you’re looking at investing in a well established franchise opportunity or not. “There’s no substitute for forensic study of the opportunity, speaking to the franchisor and several existing franchisees in the network, as well as the franchising experts at a bank, before making any commitment to invest.
5. Many franchise businesses benefit from high levels of brand awareness
Brand awareness is the degree of consumer recognition of a product or service by its name. In franchising, the most obvious example of a company with high levels of brand awareness is McDonald’s. The fast food chain, which was founded by brothers Richard and Maurice McDonald in California in 1937, now has over 38,000 restaurants in 100-plus countries that serve 69 million people daily. When you invest in a franchise, in part you’re paying for the use of a brand name, as well as a comprehensive package of training and support. What’s in a name? Companies with high levels of brand awareness often have significant credibility in their market, which boosts consumer confidence, leads to greater customer loyalty and enables new products and services to be introduced more simply and less expensively. This leads to more sales, which is great news for franchisees.
6. A franchisor’s research and development activities keep you ahead of the competition
Franchisors commit significant sums of money to research and development, whether that’s to streamline methods of operation through the introduction of new technology, improve environmental management through waste reduction or innovate when it comes to the introduction of new products and services. Many independent businesses can’t afford this level of investment, which helps franchisors maintain their competitive edge and benefits the franchisee network.
7. You’re more likely to run a profitable business
In the latest bfa NatWest franchise survey, 93 per cent of franchisees said their businesses were profitable. And at 14 per cent, the proportion of those claiming to be highly profitable is the largest on record. Another standout statistic from the study is that 60 per cent
of franchisees turn over more than £250,000 a year. Some established franchisee’s incomes are significantly higher. Right at Home is a leading
light in the home care sector. Almost 50 per cent of its franchises over two years old are currently reporting an annualised turnover of over £1 million.
8. The franchisor has considerable buying power, so franchisees can profit from economies of scale
A franchisee typically buys the products and services needed for their business from the franchisor or its nominated suppliers at a cheaper price than if they were running an independent company. This is because of the bulk buying power of the franchisor, which in many
cases will be purchasing for a network containing multiple businesses. Some of this discount is passed on to the franchisee network.
The type of arrangement is specific to each franchise and is detailed in the franchise agreement
9. A lot of franchisors offer a protected territory as part of their franchise package
This means you can rest assured that the same business operated by another franchisee or the franchisor won’t pitch up next door, affording you a degree of security. Protected territories are usually defined by postcode, population, demographics or geographical
region and mean a franchisee can focus their efforts within a workable area. Stuart Lee, director at Atlas Mapping, which provides franchise territory mapping services, says: “There are numerous benefits to both the franchisee and franchisor by offering protected territories. “For the franchisee, it provides security and protection, so that franchisees don’t compete over the same customers.
10. You have a valuable asset when the time comes to sell
Franchisees sell their businesses for a multitude of reasons, which is why ‘resales’ - where an investor buys an already established franchise rather than open a new one - are common in the UK (around 50 per cent of franchise brands offer resale opportunities,
the bfa reports). As well as being an accepted way of getting into franchising, the resale value of a franchise may be higher than an independent business of the same size.