Buying a retail or hospitality franchise has many advantages, and if you can meet one particular test it can be a great way to go into business.
The unique business model has exploded in the UK, with the number of franchises increasing by 10% in just three years. The franchise industry now contributes over £15 billion a year to the economy, and employs over 600,000 people.
Franchising is clearly a popular business model, but is it the right one for you? The answer will ultimately depend on your financial circumstances.
Let’s take a closer look at the pros and cons of buying a retail or hospitality franchise so that you can make an informed decision.
What is franchising?
Franchising is when an existing business (the franchisor) allows a new business owner (the franchisee) to trade under their name. This usually means opening a new branch of the existing business.
To do this, the new owner usually pays the franchisor a fee and gives a percentage of their sales revenue. Many top brands operate under this model, including McDonald’s, Subway and Starbucks.
In practice, once you’re a franchisee, you’re effectively the owner of your own little chunk of the franchisor. However, you’ll trade under their name, maintain their standards and probably won’t get much say in how things are done in your location.
What are the advantages of a franchise?
There are many good reasons to become a franchisee instead of going it alone.
For one, it gives you something of a head start. You won’t have to develop your own products and brand or forge relationships with partners and suppliers. At the same time, you’re almost guaranteed a stream of customers, depending on how well known the franchisor themselves is.
Franchising is especially good for people who want to enter the business world and one day run their own company, but lack the experience to do so. On top of the extensive experience you gain as a franchisee, you might even be able to access a training programme from your franchisor as well.
Meanwhile, you’ll have access to a business plan that has already proved successful, can benefit from nationwide marketing campaigns and promotions and won’t have to compete with the franchisor for customers
All of this means that the odds of success are much greater for franchises than new businesses. An impressive 97% of UK franchises are profitable, and over half have an annual turnover of more than £250,000.
What are the drawbacks?
What’s the catch? Well, while there are many benefits of owning a franchise, it may not be the right choice for everyone:
First, the initial costs can be high. The British Franchise Association estimates that the average franchise fee is around £40,000 – which doesn’t take into account the ongoing costs.
Second, you will be expected to follow the franchisor’s lead, so there won’t be much room for creativity. This can be frustrating if you are someone who likes to take the initiative.
Plus, it’s easy to forget, a lot of customers prefer to patronise an independent business, especially after the pandemic had such a hard impact on them. Conduct thorough research on this aspect to make sure you’re making the right choice.
Is franchising right for me?
Our clients who go down the franchise path tend to thrive. The ongoing support and existing brand recognition gives them a huge advantage over their competitors, especially if they are new to running a business.
If you can afford the initial stake, we would say that a franchise is definitely worth considering.
However, finances are not the only thing to bear in mind. You also need to think about whether a franchise would suit you personally. If you see yourself as an independent entrepreneur, you may be uncomfortable letting a franchisor take charge.
But you came here for clear advice on what to do and that’s just what we promise.
We would say that the only reason not to consider franchising is if you can’t find the initial capital to buy your stake.
After that, the support from franchise operators and value of the brand means franchisees often thrive.
For more advice, don’t hesitate to get in contact with our team.