I wonder what you think when you hear the word “franchise”…? Maybe you think of big businesses like McDonalds or UPS. Or of movie franchises like Harry Potter. If you’ve got small children, maybe you’ve heard of a franchised children’s clubs like Tumble Tots or Enjoy-a-ball.
The idea behind a franchise is that someone (the franchisor) comes up with an idea, a method or a product, and someone else (the franchisee) buys the rights to use it. The Franchisor will charge the Franchisee an initial franchise fee and then on going monthly royalties.
Some studies we’ve looked at show that franchises have a success rate of approximately 90% as compared to only about 15% for businesses that are started from scratch. It’s hardly surprising really. When you start your own business, usually you have to think about and do everything yourself, without the assurance that the business or brand you’re creating is ever going to have any customers. A franchised business however has done all the hard work already, and there is a proven track record of success.
This proven track record comes in very useful when applying for finance to start a new franchise. Many people who start a franchise have to take out a bank loan to cover the initial franchise fee and other start up costs. It’s far easier to get a loan for a franchise than it is for any other start up. Banks look favourably on concrete evidence of established franchises rather than on projected estimates of revenue and expenditure.
Franchised businesses often allocate exclusive territories to their franchisees, ensuring that they alone have marketing rights within a given area. A franchisor will not be allowed to sell the same area to anyone else and any neighbouring franchisees will be legally required to stick to their own patch. It might be tempting to think that it’s best not to have a neighbouring franchisee so that there’s no competition anywhere near. But in actual fact, more franchisees in close proximity to each other enhances brand awareness and increases sales across the board. It also has the added benefit of allowing franchisees to share marketing costs and gives them a greater sense of community and peer support. Some franchised business have lots of franchises very close together, for example it wouldn’t be unusual to see KFC and Pizza Hut in the same street, though these are both franchised business belonging to the same company (Yum! Brands). The advantage in this comes when customers realise that if they want a fast food meal, that’s the street to visit as there’s plenty to choose from. Far from another similar business being a threat, working collaboratively has huge benefits.
Starting a new business can be isolating and stressful, but owning a franchise means that you are set within a community of like-minded people. Often the Franchisor will provide a mentor and there will be ongoing training and support in all areas of running the business. If a franchisee encounters a problem and needs advice, they can pick up the phone and speak to someone who has first hand experience of running the same business.
However buying a franchise isn’t right for everyone who is considering starting their own business. Some people want to be independent and create their own business from the ground up. They don’t want to be accountable to anyone and they want the freedom of being able to make their own decisions in their own time. For others, they like the idea of walking into a business that is already clearly defined. They like the training, support, branding and above all, the proof that the business model works.
If you think you might be interested in finding out about the franchises we offer, please get in touch. We’d love to hear from you.