Start the New Year with a Franchise
Start the New Year with a Franchise
Many people start the New Year with plans to set up their own businesses. For many it is a huge step into the unknown and requires a lot of confidence.
The need to raise finance, write a business plan and forgo job security are some of the challenges facing budding entrepreneurs – in addition to developing a product of service to sell.
One solution for those keen to start up on the own but who also want to keep a little job security could be franchising. Some of the best-known brands on the high street are run by franchisees, such as Subway, Threshers and Domino's Pizza.
The number of franchise formats has risen by 60 per cent over the last 10 years, and there are some 760 business ideas to choose from. The franchising sector has a turnover of more than £10 billion and employs 364,000 people.
In basic terms, franchising means starting up a new branch of an existing business format. The franchisee pays a fee to buy the franchise, which will include such items as the shop fascia, signs, stock, equipment and support so that the new 'branch' looks and operates in the same way as every other outlet in the franchise.
The franchisee then runs the outlet as if it were their own business, taking a share of the profits and making decisions on issues such as hiring staff.
One big advantage is that it is a safer, lower-risk way of getting into business. Franchising has a much higher success rate than going it alone – while nearly one fifth of entrepreneurial start-ups fail in the first year, 92 per cent of franchisees are still going strong after 12 months.
Against that, would-be franchisees need to balance the cost of buying in. Although franchises offer something of a safety net for budding business people, initial costs vary greatly. Prices range from £8,000 for a less well-known business to more than £200,000 for a high street brand, and the decision is based on how much risk the franchisee wishes to take.
The brand that is chosen will influence how much leeway the franchisee has for contributing ideas to the business – smaller franchises may have more flexibility and be open to ideas, whereas the larger ones are likely to expect everything to be done in a particular way.
Before making the decision to take the franchise route, it is best to weigh up the advantages and the disadvantages. The advantages are:
- The business is based on a proven idea, so the risk of failure is lower.
- The franchisee will benefit from a support network.
- Many of the decisions affecting the business have already been made.
- It is easier to get finance because banks are happier lending to a proven franchise.
- The franchisee will benefit from national marketing and advertising, usually out of reach for a stand-alone entrepreneur.
However, the disadvantages are:
- The initial costs of buying into a franchise can be high.
- There is limited scope for individual flair and creativity as the business will have to be run using the franchisor's guidelines.
- There may be termination restrictions, meaning the franchisee cannot go into a similar business after finishing with the franchise.
- Other franchisees could damage the reputation of the brand.
As with all important business decisions, it is vital to seek the best professional business advice you can afford before making long term and binding arrangements.