Franchising offers those who aspire to become business owners a head start, without the need to develop a format for themselves, writes our expert – ServiceMaster’s David Burton.
Buying into a franchise can be a fantastic way to start your business. The model has already been developed, the brand has been established, and the franchisor has already invested in a support team to help provide every chance of making your venture a success.
With the right attitude, and a developable aptitude, franchising might just be the right option.
Risk is a phrase more commonly associated with the insurance industry, but any aspiring investor should be looking to reduce risk upon starting a new venture.
Franchising offers a reduced risk option, as well as an increased likelihood of securing finance, as it is well known that major banks are more willing to lend finance required to invest in franchise opportunities.
However, franchising is not for everyone, and it isn’t a guarantee of success. Like starting any business, franchising requires hard work, investment and trust in the franchise model.
Due diligence is required from both franchisor and franchisee before any investment takes place. Ask yourself: “Can I work with these people? Do I like the proposition? Will the investment achieve a return to suit my requirements?”
Franchising works because the model is proven and the brand and business format has been developed, but if the idea of someone else making suggestions and providing guidance on what to do with your business does not appeal to you, then you may want to reconsider whether a future as a franchisee is right for you.
With that in mind, here are four reasons why franchising can provide the head start to business ownership you’re looking for.
(1) Increased survival rates
Around 80 per cent of businesses are expected to fail in the first 18 months, while The Bank of England also claims that a third of UK businesses are not profitable.
But UK franchising is on the up. According to recent research conducted by the British Franchise Association (BFA) and NatWest, there are over 44,000 franchise-owned businesses in the UK – an increase of 14 per cent over the previous two years. The research also stated that 97 per cent of franchise-owned businesses report profitability
(2) You’re operating a proven business model
The beauty of franchising is that the business model already works. It’s been proven to work and, with a dynamic franchisor at the helm, should continue to do so.
According to statistics from CB Insights, startups often fail because they provide a service or a product that nobody wants, but since demand is already proven with a franchise, you’re already one step ahead.
(3) You’re more likely to receive financial support from banks
Most franchisors, certainly those that are members of the BFA, will have relationships with lenders you can access. You can always leverage your own financial support from your own bank and request information on the franchisor whilst you’re there.
If a lender is willing to provide the information, this demonstrates that they are supportive of the business model and the franchise opportunity.
ServiceMaster requires investors to raise at least 30 per cent of the finances required, the remaining 70 per cent of which can come from approved banking lenders.
(4) The ongoing support
As a franchisee, you’ll be required to pay fees or royalties, either as a flat fee or as a percentage of your monthly or annual turnover, and in return you’ll be provided with ongoing support.
You could purchase support within your own business but with operations, technical, marketing, HR and IT services on tap, could you really afford that as a new startup? And, does an external resource really understand your business?
A great franchisor provides support to help you succeed. If you make money, they make money. There should rarely be a predicament or a problem they haven’t already faced and provided a solution for and as a franchisee, you are now able to access this substantial support function to build your business.
It’s important to build a relationship with your franchisor quickly. In the early days of launching your franchise you’ll be at the beginning of your learning curve.
Owning a business may be new to you or it might not be, but the franchise model certainly will be. Learn to trust the advice and motivations of your support network and move your business forward together.
Remember that franchising isn’t for everyone. However, if you want the challenge of business ownership with reduced risk, a proven business model to follow, easier access to finance, and great ongoing support then franchising just might give you the head start you’re looking for.
Want to read about the experiences of a successful franchisee? Meet Matt and Jen Snell from Trophy Pet Foods.
Sign up to our newsletter to get the latest from Business Advice.