In very simple terms, franchising is a business strategy. It’s a rather unique concept designed for fast growth and expansion. It’s also one of the most attainable business opportunities for aspiring business owners searching for their lucky break.
If you’ve ever dreamed of being your own boss, but lack the knowledge to start a business from the ground up, franchising could be a great move for you.
A franchise allows you to start your own business with someone else’s trademark, systems, and processes, all in place. Essentially, you’ll be taking on an established name, complete with training assistance, and help with things such as marketing and advertising.
This type of business model is common in the United States, with many of the world’s multimillion dollar franchises based in America. But in recent years, franchising has also grown in the UK.
It is estimated that the franchise industry brings in more than £15 billion to the UK economy. This has been due to significant growth in the last decade, with more and more organisations choosing to distribute this way.
The Meaning of the Word ‘Franchise’
The exact definition of a franchise can be hard to characterise, as there are a number of different franchise structures out there. Distributorships, brand licensing, and business format franchises are all businesses that fall under the concept.
But in the broadest terms (and in the typical business format), a franchise is:
A business that allows other businesses to sell products or services under its trade name. The businesses that sell these products pay for the right to do so, and pay a percentage of their profits back to the parent company. In return, the parent company provides business structures, marketing and advertising, ongoing support and training, equipment and stock.
Where It All Started
Some famous franchises you might already know of are McDonald’s, Subway, and Hilton Hotels. But franchising as a concept dates further back in time, even to the Middle Ages. The first modern franchise came about in the 1880s, when Isaac Singer created the iconic Singer sewing machine. It was a revolutionary sewing machine, one that everyone in America wanted to own. But the problem was, there was only one of him to sell it.
To increase distribution, he sold licensing fees to eager businessmen. The upfront fees helped to boost production and grow the company. While the high demand for his product meant that franchisees were incredibly successful in a short space of time.
Of course, that doesn’t mean that franchising is always easy, or suitable for everyone. To be successful, you need to have all the traits of a top entrepreneur, and you’ll have to spend some time learning how the process works.
Franchising in More Detail
So how does franchising work? And what are the costs involved?
The first thing you need to get to grips with is the franchise process. This process includes all the key steps of opening a franchise, something we will discuss in detail in another article. It can be a long, drawn out process, including everything from choosing a franchise consultant and conducting research to hiring staff and launching your business.
You will also need to understand the ‘franchise agreement’. This is a lengthy document that deals with everything from payment provisions and intellectual property to software and supplies. This has to be looked over carefully, as it’s legally binding and details your rights as the owner.
When it comes to licensing, the price can vary greatly depending on the type of business you want to own. You, the franchisee, will be required to pay a one-off upfront fee, and after that you will have legal rights to trade under the brand name.
With most business format franchises, you will be provided with:
- Help in selecting or developing the premises if applicable
- Brand training for owners / managers
- Ongoing advertising and marketing materials
- Support from a franchise manager
The fees can be anywhere from a few thousand pounds all the way up to £300,000, depending on the size, scale and complexity of the business. But these aren’t the only costs you’ll have to account for, as you may need to pay for stock and there could be ongoing royalty fees to factor in.
Not all franchising opportunities are costly however. Franchises like ours have very low start-up costs, so you can easily find a franchise contract that works for you.
The Benefits of Franchising
There are plenty of advantages to opening a franchise. Not only can you have a ready made (and proven) business process in place before you even begin, but you’ll have access to the company’s expertise to help you succeed. In many ways, you will have control of your own business, whilst also avoiding the risks associated with starting a business from scratch.
For ambitious individuals who want to work for themselves, but worry about lacking in knowledge, this is a good stepping stone.
Franchising is also suitable for people from all backgrounds. You could have a business degree, or you could be a complete business beginner looking for a new challenge. Whatever your experience, franchising allows you to reach your potential with the right amount of guidance and support.
Finding Franchising Opportunities
The great thing is that franchise businesses can come in any shape or size, and there’s usually one to suit every budget and every individual. There are opportunities across multiple industries, including B2B and B2C sectors, so it’s easy to find a niche.
Whether you’re interested in big chain restaurants, or you want to start a small, scalable vending machine business, the opportunities are out there.
With franchising continuing to grow in the UK, 2018 is a good time to search for a company that inspires you.
Industry reports show an all-time record high of 97% of franchise businesses proving to be profitable. Plus, over half of the UK’s franchise businesses are reporting a turnover of more than £250,000. That’s a very small fail rate with high earning potential, making franchising more attractive than ever to budding entrepreneurs.
If you’re interested in reading more about franchising, be sure to keep checking in on the Tubz advice blog. Over the next few weeks, we will we be sharing a series of articles to help aspiring business owners learn more about how it all works, and tips for getting started.