Franchising as a method of expansion
The franchising industry in the UK is now worth over £10
billion. Over 90% of franchisees are profitable and the sector has grown
in the UK by more than 40% in the last 10 years. The turnover / revenue in
UK franchising has increased by more than 80% in that 10 years. There are
more than 800 active franchise networks in the UK alone, and the sector is
growing quickly.
Franchising as a label is sometimes given
to different business formats. What we at EXB Legal mean when we refer to franchising
is "business format franchising". In essence, one successful business (the
franchisor) sets up a training scheme, package and manual on how to operate the
business and gets everything that someone else (the franchisee) needs to
replicate the original business for himself.
The franchisee is self-employed,
but trades using the franchisor's name, and has to follow rules to ensure brand
consistency. In addition to the licence to trade using the brand name, the
franchisee has access to the network of other franchisees and the
franchisor. The franchisee also gains by having support and training from
the franchisor, and often has access to discounted supplies through bulk buying
power. There is a much higher success rate for entrepreneurs who buy a
franchise to set up their business than for entrepreneurs setting up a new
business without that support. In return for his initial training and
package and the ongoing support, the franchisee usually pays an upfront fee to
the franchisor, and then a percentage of his ongoing revenue (or sometimes fixed
fees or product mark-up).
For potential franchisors, further information
on franchising and what is involved is available on Franchise Generator
's
website.
Advantages and Disadvantages of Franchising
For the franchisor, the advantages
of franchising include that there are lower investment costs compared to expanding
organically, and the network can usually expand far more quickly. The
network should be highly motivated, because the franchisees are self-employed
and have invested their own funds, and the brand can be protected through
carefully drafted legal agreements that are enforced.
If you franchise
successfully, your revenue and profits should increase both from increased sales
and ability to target national customers and also from the ongoing franchise
fees received, which are usually a percentage of your franchisee's
revenues.
There are disadvantages to
franchising, and not all businesses are suitable to franchise (please see Franchise Generator's
website). Some disadvantages
include the need to control a network of entrepreneurs (not always simple) and possibly lower total rewards than organic
growth (although this could be counterbalanced by more rapid growth and lower
risk). EXB Legal can offer advice to you and in particular
please see our "Next Steps" page for the no-cost,
no-obligation initial meeting offered to potential
franchisors.