Franchising is one of UK's fastest-growing industries and an interesting proposition for anyone thinking about running their own business. Since 2006, the number of British franchise businesses has risen by 20%, and the industry created almost 130,000 new jobs between 2009 and 2011.
Why buy a franchise?
The term "franchising" most frequently refers to business format franchising, which is when a company (the franchisor) grants a license to others (franchisees) to sell their products or services under the company's brand, and following the company's existing business model.
One of the main benefits of becoming a franchisee, according to Richard Holden, head of franchising at Lloyds TSB, is that: "Experts generally regard investing in a franchise as a lower-risk way of setting up in business. The benefits of investing in a tried, tested and proven franchised business mean that you can expect the franchise failure rate to be much lower than an independent startup business."
What's more: "The initial training and continuing support from the franchisor can make the transition into the business world far less daunting. Belonging to a network of businesses also offers brand recognition, greater buying power and proven marketing strategies. The opportunity to share best practice and to talk through your problems with other franchisees is also a valuable resource which should not be overlooked," says Holden.
The whole story
Nevertheless, buying a franchise does not guarantee business success. Running a franchise is also hard work and does not afford you complete independence as an entrepreneur. "You buy into a proven business system for its benefits but you also take on the responsibility for following it – not doing so may result in you losing the business," warns the British Franchise Association's website.
There is also no guaranteed level of return when you buy into a franchise – the revenue you generate will depend on your efforts, your franchisor's efforts, and the market you are operating in. Likewise, if the franchisor or other franchisees get bad publicity, this may have an adverse effect on your business.
Understanding the relationship
Joining and running a franchise will inevitably incur costs, likely to include:
• A management service fee or royalty.
• A contribution to the advertising fund.
• A mark-up on goods supplied by the franchisor.
• An administration fee for specific services provided.
These are typically taken as a percentage of sales, payable to the franchisor on a monthly basis. In return, the franchisor should offer support and guidance on matters such as: how to supply the product or service, accounting systems, staff training and recruitment, marketing, ongoing research and development.
The right franchise for you
For individuals looking to choose between potential franchise opportunities, Holden suggests some quick-fire tips: "Research and evaluate the opportunity; in particular focus on the history of the franchise. Is the brand a strong one? Is it easily recognisable, for all the right reasons? Is the business sound? Look at the accounts and investigate whether there have been any franchise failures and why these businesses have failed. What is the competition like? What costs are involved and what is included in the fees?
"Also, don't be shy of asking the franchisor difficult questions. And don't feel pressurised into making a decision at the first meeting. Use any initial contact as a fact-finding exercise. Take the time to reflect and digest."
Checking for bfa membership is another good way to choose between franchise opportunities, says Brian Smart, director general of the British Franchise Association: "The bfa accredits franchisors using a stringent set of criteria based on operational procedures, franchisor/franchisee practices and the European Code of Ethics for Franchising. All members are listed on the bfa's website to allow potential franchisees to determine which ethical franchisors have passed these checks – not all do. If they are not a member, ask if there is a reason why not," says Smart.
Making it a success
So, once you have chosen your franchise, how do you go about making sure it is successful? "Follow the system! It's been proven to work, and someone else has made the mistakes and undergone the trial and error along the way so that you don't have to," observes Smart.
"And as with all businesses, anyone looking to succeed also needs dedication, tenacity, a hard-work ethic, passion and the support of family and/or friends if they are to prevail. If you can combine these skills with the support and advantages of franchising, then you give yourself every chance of becoming a very successful business owner," Smart says.
Holden adds: "You will have a far better chance of success if you actually enjoy what you're doing. That's what will give you the drive to get out of bed on a cold winter morning with enthusiasm and passion, ready to face the working day ahead."
Professional guidance and expert help
Making a success of your franchise also requires preparation of a thorough business plan in order to secure funding. Holden suggests that franchisees "utilise the knowledge and experience of fellow franchisees, the franchisor, and talk to the bank," to do this.
Smart echoes this, saying: "Franchisees can reap significant rewards by gaining the right franchising advice, from the right people, from the very beginning. Professional advisers to the industry must demonstrate significant expertise and experience in their field within franchising to become bfa members, so specific professional advice (such as legal, financial or accountancy) should always be sought from one of these businesses."
Lloyds TSB is a bfa member and has 50 trained franchise managers located throughout the UK, all of whom have experience of working with and providing guidance and support to those operating in the franchise industry. They've compiled a free guide for prospective franchisees, containing a list of 30 key questions to help inform your decision-making process. If you're interested in taking this path, you can arrange to speak to one of Lloyds TSB's franchising team who can offer dedicated, specialist support.
This content has been provided by Lloyds TSB, part of the Lloyds Banking Group.
The Lloyds Banking Group includes Bank of Scotland plc and a number of other companies using brands including Lloyds TSB, Halifax and Bank of Scotland, and their associated companies.
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