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10 reasons to invest in a tried and tested opportunity

10 reasons to invest in a tried and tested opportunity

From reducing the risk of starting your own business and being able to enter a completely new industry to benefiting from heightened brand awareness and bulk buying power, here’s why we recommend you become a franchisee

Business format franchising has a long and varied history in the UK. Its origins date back to the mid-twentieth century and today is worth £17.2 billion annually to the economy, an increase of £2.1 billion since 2015.

The sector has evolved to now include an estimated 900 different brands (twice the number operating in 1996), which all offer aspiring franchisees the opportunity to invest in a proven concept in a range of industries.

According to the latest British Franchise Association NatWest statistics, franchising employs 710,000 people who work in 48,600 franchised units.

While these are impressive figures - and usually come as a surprise to people who are only just beginning their research - why should you invest in a franchise instead of starting out on you own? It’s a question we get asked regularly, so we’ve compiled the top 10 reasons you should buy into an already established brand:

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 online offerings and new delivery and click and collect options that provided a vital financial lifeline to their networks.

Some franchisors also provided franchisees with regular updates on the fast-moving situation they faced, launched online hub pages containing useful information and arranged virtual meetings to aid effective communication. Combined, these factors inspire collaboration and a focus on the pursuit of a common goal: the maintenance of a highly successful national brand that’s represented by a network of motivated business owners who provide a consistent service to customers. It’s also why franchising has adopted the phrase ‘In business for yourself, but not by yourself’.

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.

Palomie Patel worked in finance before she became the owner of F45 Training’s Camden gym franchise in north London.

She explains: “After six years in the finance industry, though initially exciting and rewarding, I had lost interest in continuing along the corporate path.

“I hadn’t given much thought to what I wanted to do next, but knew I wanted to pursue something I was passionate about and that challenged me.”

After being a member of one of F45’s London studios for a few months, Palomie found out it was a franchise. She decided to investigate further.

“Fitness had been a big part of my life for a long time, but I had never seriously thought I could align my career with that passion, so I was thrilled at the thought of being able to do just that,” Palomie says.

“My husband and I set up a meeting with the F45 UK sales manager, who was incredibly helpful in answering questions and also put me in touch with a few current owners to find out more about what being a franchisee is like.

“After speaking to them and doing more research of our own, we were quickly drawn to the opportunity, particularly to how structured the franchise was and how efficiently it seemed to operate.

“Like any new business, there were some challenges, but we had so much support from F45 headquarters along the way and aspects like their fantastic technology integration made life a lot easier.

“Despite being hit by the pandemic in our first year of business, I couldn’t be happier to have made the transition.”

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.

A good illustration of this is Papa John’s. In November 2020, the company won the Pizza, Pasta & Italian Food Association’s Pizza Delivery Chain of the Year award for the second consecutive year. The accolade is given to the pizza delivery chain that’s doing the most to drive the market.

Justin Gilbert, director of business development at Papa John’s UK, says the company has continued to drive improvements across all areas of the business.

He adds: “Over the past 12 months we’ve been focused on introducing brand new recipes following the very latest trends in food consumption across the globe.

“It’s this attention to innovation, combined with top-quality ingredients, rapid delivery times, plus great customer service, which has enabled us to continue to grow in popularity in the UK.

“What’s selling at any one time can depend on the time of year or latest trends in the market.

“For example, the introduction of our ‘Bee Sting’ pizza, which combined a hot and spicy base of Amarillo chilli, topped with pepperoni, mozzarella, fresh green chilli and a sweet wild flower honey drizzle to balance the sting of the heat, was a big hit. “Also, with more people taking on a plant-based diet than ever before, our new vegan pizzas have also proved particularly popular.

“As a brand, we actively encourage customer feedback. This information is used to develop our offering and menu selection. Only if we understand and respond to our customers’ needs, experiences and their whole journey with us can we keep delivering their favourite pizzas, which means more success for our franchisees.”

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.

CEO Ken Deary says: “The fact that such a high percentage of the network has hit this revenue milestone clearly demonstrates the biggest benefit of franchising - that success can be replicated by following a proven business model. “Our franchise owners are supported to embrace all aspects of the Right at Home system. They also have a range of options for sharing best practice and learning from one another’s experiences.

“As a franchisor, we’ve always strived to maintain consistently high standards right across the network, so the owners have a really well-reputed brand behind them and access to specialist support in all areas of the business via our team at national office.

“Importantly, this includes keeping their finger on the pulse of their business finances and working to achieve the best possible profit margins without compromising the quality and value of their services.

“Demand for great CareGivers has always been a significant challenge to growth in our sector, but the economic changes of the last 12 months and our extensive support with recruitment have helped us achieve record network growth in 2020.”

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.

Franchisees in the Taylor Made Franchising Group benefit in a variety of ways from being part of a franchise.

Managing director Darren Taylor explains: “Our PVC Vendo franchisees, who wash commercial fleet vehicles, benefit from a group-wide purchasing deal with cleaning products supplier Autosmart. We purchase detergents on behalf of the entire company, selling them on to franchisees at a considerably reduced price.

“In 2016, we bought the UK dealership for the handheld American Alpine Magnum stump grinder. As the sole importer of these grinders into the UK, we’re able to sell them to our Stumpbusters franchisees at significantly reduced prices.”

As well as specialist equipment, Taylor Made franchisees also get access to cut-price promotional items.

“Many of our franchisees use flyers and various other pieces of marketing material to promote their businesses,” Darren says. “We have a virtual ordering system set up whereby franchisees log in to a central portal and amend a pre-branded, pre-designed template, which is then printed and delivered to their door.

“The design and branding has already been done and naturally, as we are ordering repeatedly, we get a good price from the printers. This kind of marketing can be costly and time consuming for a single operator business.”

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. However, being part of a franchise network also comes with the benefit of allowing neighbouring franchisees to help where required.

“If a franchisor has also carried out appropriate due diligence or commissioned a professional mapping company to help with territory creation, it also ensures there are enough potential customers for the business to work.

“Be aware though that the most common mistake Atlas Mapping supports franchisors and franchisees with is that the territories awarded are too large. It’s easy to think that bigger is better, but actually, this can stretch franchisees too thin, leading to customers not being serviced and ultimately creating a strained relationship between franchisees and the franchisor.

“When territories are professionally created, they should make sure there is enough opportunity for a franchisee to stand a good chance of succeeding and also be serviceable. The specific factors for this depend on the business model being franchised and what the sales expectations of franchisees are.

“Territories should also take account of the local transport infrastructure and topography so that they remain sensible. It’s not ideal for all territories in a network to offer ‘the same’ opportunity, as this isn’t realistically possible. The population across the UK is not spread evenly, so it shouldn’t be expected that franchisee territories would be the same also.”

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.

Michael Bohan, director of Franchise Resales, a company that helps people buy and sell existing franchises, says: “A successful franchise resale, combined with the backing of a strong franchise brand, provides a much better return on investment. This is owing to the systems in place, the support on offer and the proven background.

“This is partly due in many cases to a franchise brand being much more well known nationally in comparison to an independent business.”

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