Franchising · 18 October 2016

Franchising A-Z: Investment – Why franchising is the sound choice

Whether you’re a franchisor or a franchisee, you want to see a return on your investment

His latest blog post sees resident franchising expert David Burton cut through the waffle and tell it like it is – franchising is an investment, and franchisees want to see a return on their capital.

Whether you’re the franchisor or the franchisee, you want to see a return for the money invested in making your business work.

How quickly that return is realised is down to the investor and they’re exploitation of the franchise system.

Each and every one of our franchisees is considered an investor and the franchise proposition is an investment piece. ServiceMaster’s managing director, Alan Lewin explained: “Franchising is a proven way to start your own business, presenting an opportunity to become your own boss, employ your own staff and ultimately own a profitable business.

“It sounds obvious because nobody buys a franchise to screw it up but very often, over time the perspective can change and so a big part of the work with franchisees is keeping the investment piece in focus.

“They put cash in at the beginning, be that from a startup or buying an established business, they operate or manage their business and when they wish to exit the system, they sell and move on with a larger amount than they started with, and so the cycle continues with a new franchisee.

“Helping franchisees when to realise their investment and move on is a large part of our role as a franchisor. We work with a number of franchise resale partners who support us in helping to prepare a business for sale to ensure it’s as attractive to a new investor as possible.”

It’s all about sustainable levels of profitable growth within a system that is recognised as being successful.

The savviest franchisees will be building in their own obsolescence from the business as they build and operate a lean, profitable organisation that provides them with a suitable income and an appreciating asset that is steadily growing in value and appeal ready for the next potential owner.

“Some of ServiceMaster’s franchise opportunities operate at more than 70 per cent gross profit. There are few more attractive propositions to a potential future investor than seeing high profit levels generated by growing revenues in a business that is not overly reliant on the current owner as an individual.”

Many successful and longstanding franchise opportunities are not in what many would consider ‘sexy’ businesses; for example, restoring water or fire damaged properties or cleaning people’s homes and offices are not high on the list of careers for many aspiring business people.

However, essential services that can be operated profitably at scale is perhaps the angle investors should be looking at it from. What profit does the business make? How much is the initial investment and when can I expect a return? What support do I get now, through the life cycle of ownership as well at the end of my journey?

“For the franchisor, investment into your business is an absolute must. Operating your business is one thing but supporting a growing network of franchisees is completely different.

Many franchisors here in the UK reach a plateau, with a network of around twenty franchisees, as they find it incredibly difficult to make the transition from being a recruiter, a franchise sales lead business, (typically run by the founder) into a support and development lead organisation, which also has to attract new franchisees.

It’s at this sort of scale where many franchisors reach an unintended limit to growth.

“ServiceMaster as a franchisor has to continually invest back into both the support, sales and marketing activities of the business to enable its high level of value to its franchise networks. This is in addition to maintaining appeal and pace with the markets that we reach through our franchise brands.

We consistently review the technology and systems we use, asking ourselves how can we do it better, smarter and quicker. We also believe that it is essential to invest in our staff and have now seen three of our brand operations managers achieve Qualified Franchise Professional (QFP) status in 2016.

If we are encouraging our franchisees to grow and develop and to reinvest in their businesses, we must lead by example and demonstrate how investment into, people, technology, systems, can return improved performance and results.”

Franchising is an investment. Like any business, owning and operating a lean, money making machine is the key to success and knowing when and how to market your business for sale is as important as knowing how to start trading.

Missed the previous post in David’s A-Z franchising series? Catch up here with H – A head start in franchising.  

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Fred Heritage was previously deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London.

Business development