If you’re seeking the potential rewards that come with setting up your own business but are also worried about the risks, you could consider investing in a franchise instead. Franchises come with many of the benefits of owning your own business, but with more security. In their latest survey, the British Franchise Association and NatWest found that the franchise industry now contributes £17.2 billion to the UK economy and employs 710,000 people.
So, what exactly is a franchise and how could you benefit from joining the growing numbers of franchise investors?
Franchises in a nutshell
A franchise is a license given to a third-party by a company or individual, to act as an agent for their brands or products. Basically, this means that you own your own business but pay royalties and adopt the operating systems and branding of an already existing company. You will also receive their business support and training. To the consumers, your business will look like another branch of a brand they already trust, but you run it as your own business, and profit directly.
McDonalds, Pizza Hut, Subway and Papa John’s are among the most well-known franchises in the UK, but did you also know that Clarks, Thornton’s and Toni & Guy are franchises too? There are thousands of franchises on the market in a huge range of industries including B2B, accounting and finance, retail, travel, motoring, healthcare, ICT, beauty, fitness and home improvement.
There are three main types of franchises:
Business format – where a company expands by offering independent business owners an established business, trademark and often help launching and running their business.
Product franchises – where a manufacturer will control how retail stores distribute their products. The retail store will usually pay a fee or have to buy a minimum quantity of products to obtain the rights to use their names and trademarks.
Manufacturing franchises – where a franchiser gives a manufacturer the right to produce and sell goods using its trademark.
For those considering buying a franchise for the first time, the business format is probably most relevant and comes with the following benefits:
The benefits of buying a franchise
- An established brand gives financial security, as renowned national and international companies benefit from consumer awareness and brand loyalty.
- Franchisees will receive help setting-up and running the business as well as receiving ongoing training, which means you may well not need any previous experience.
- You’ll also have plenty of back up from head office, benefiting from a proven business model and an already-established operational infrastructure.
- Marketing and advertising is often taken care of by the parent company so there’s no need to worry about promoting yourself. Big businesses may have national campaigns in place that will direct customers to you.
- You get to be your own boss, hire your own staff, and directly profit from your own hard work.
How much autonomy will you really get?
It is important to realise that franchise owners do get less autonomy than they would if they started their own business from scratch – but get other benefits in return. Your franchisor may have control over aspects of your business such as site approval, design or appearance standards, restrictions on goods or services, and methods of operation. You will also have to make continuing royalty payments to your parent company and may have to pay some advertising fees. These costs depend on the type and size of the franchise you are buying into.
However, many franchisors do give their franchisees some decision-making abilities in order to better understand their customer demand, make improvements to their businesses and keep their franchisees happy. According to subway.co.uk, the brand works closely with its franchisees, who “actively participate in the running of the international advertising fund and the European Independent Purchasing Company.” More involvement is generally positive, but you need to consider whether, for you, the benefits that come with buying a franchise outweigh having full control.
It’s worth considering a smaller franchise
You are likely to have more decision-making powers if you choose to invest in a smaller, lesser-known franchise. The benefits above largely refer to buying a franchise in a well-known brand. However, it’s worth thinking about the advantages of lesser-known franchises. You are likely to receive more individual support with a smaller business, and although working with an established brand that’s dominating a sector has obvious perks, it’s worth considering the benefit of investing in a company in an emerging market that has less competition. Working with a new business does also mean that your parent company will be more likely to listen to your ideas, and you could have the opportunity to be a part of something with potential to grow, and take you with it.
Interested in business? Take a look at our business and professional courses at Derby College.