Franchising: Is it a Viable Business Option for You?
Owning a franchise can be a more risk free way of running a business; we consider some of the pros and cons of becoming a franchisee to help you decide
If you’re thinking of buying into a franchise, you’re in good company. Many entrepreneurs are attracted to the idea of getting marketing support, legal advice, and a proven business model, so they can focus on what they’re really good at: growing a business without worrying about administrative headaches.
The franchise model is fairly simple. You make a payment to become a franchise partner. Then, you pay an annual fee and a percentage of your profits. In exchange, you get training, marketing and administrative support, and access to useful information to help you grow your business.
This article looks at the three key benefits of franchises, and also three reasons why a franchise might not be for you. By the end, you’ll probably have a better idea whether a franchise is the right option.
Three key advantages of owning a franchise
The sector is growing: 20 years ago the franchise industry was worth £5bn. It’s now worth £13.7bn
This is a sector that is growing, and it’s no fly-by-night – it’s been around for a long time – and it’s also likely that it will continue to grow, as the franchise companies enjoy such good purchasing power.
Furthermore, franchises are growing faster than regular businesses too. The 45 largest franchise stocks grew at nearly twice the rate of the Standard & Poor’s 500 in 2012 — 23.2 percent versus the S&P’s 13.4 percent, according to FranDATA.
Lower risk of failure: Because successful franchises have a proven business model, making it less likely that they will fail.
The percentage of businesses that are predicted to fail within their first year currently sits at 20%, according to Businesszone.
One of the main advantages of a franchise business model is that the business and brand are already established, offering a template ready to be implemented by a driven and talented individual. Rather than wasting resources trying to establish the best model to succeed, any would-be entrepreneur can invest their time in a business model that has already seen success.
Franchises are profitable.
This is the deal-maker. 92% of franchises are profitable, according to the British Franchise Association.
Though this still leaves 8% that can fail to make a profit, according to the Bank of England Bank of England, a third of UK businesses are not profitable,
therefore, starting a franchise knowing that you have a 92% chance of making a profit suddenly makes the business start-up process seem less daunting.
Who is franchising not suitable for?
If you’re a budding entrepreneur, you may not want to go for a franchise if any of the following apply:
You are on an extremely tight budget.
Franchises have a fee, and even affordable options can run into the thousands. If you want to start-up for under £1,000, you may need to go it alone as this means you can save money by doing your own marketing, paperwork and legal stuff.
You want control over brand and marketing.
While some people see the franchise company looking after marketing as an advantage, others may feel stifled by the lack of autonomy. For instance, if you take a McDonalds franchise, you can’t paint the big M in your favourite shade of pink.
Some entrepreneurs will find the inability to shape the brand as extremely limiting; and while some franchises can be quite liberal with franchisees, others won’t even let you decorate the interior of your store the way you want.
So if control over the brand is of value to you, a franchise may not be the best choice.
You plan to grow by adding new services
Many franchises have very specific products they want you to sell. If you are a product entrepreneur, who wants to develop new products and sell them through your franchise, this may not be possible.
Joining a franchise can be as rewarding and inspiring as launching your own business, but with evidently less risk and ongoing business support. Before deciding to go down this route, consider what is important to you if you’re running a business.
And although a franchise may seem to limiting, with so many different options from multi-national franchisers to smaller, independent ones: there are various routes for you to choose from.
This article was written by Sam Butterworth from Tubz Vending Franchise, a low-investment vending snacks franchise.