Alan J Gibson, QFP, FCMI, is an experienced franchise consultant with the The Franchising Centre, a team that helps people turn their businesses into successful franchises. He will be providing us with blog articles for the next few months, and today he begins with the basics: why people decide to become franchisees, and why it's such a good idea.
With less than a month to go to the halfway point of 2014 (12 noon on the 2nd July), this is an ideal moment to take stock of the year and revisit and review those New Year's resolutions, those ambitious plans for the future and your aspirations to set up, develop and grow your own business.
Is it time for a change?
If your answer is 'yes', you are in good company. According to current government statistics, over 250,000 new businesses have been registered in the first five months of this year, and it looks as though UK entrepreneurs are well on their way to maintaining the 10% year-on-year growth that startups have experienced over the last three years.
But it’s not all good news…
Setting up a new business on your own is tough work and industry estimates state that around 25% of startups fail in the first year, with failure rates increasing to 50% by year four. The five most common reasons for failure are said to be:
- Owner incompetence.
- Lack of managerial experience.
- Lack of product or service experience.
- Lack of planning and financial management.
- Neglect and lack of focus.
Franchising provides the right candidates with proven systems, tools, training and support to help them combat these main reasons for business failure.
What are the top ten reasons why people decide to start a franchise?
One of the pleasures of my role as a franchise consultant is that I get the chance to help award franchise opportunities, for a wide range of franchise systems, to a large number of high quality franchisees. In my discussions with candidates, the following reasons are normally given for considering investing in a franchise:
- Being their own boss – wanting to escape the politics, rigidity and frustration of working for someone else, and aspiring to benefit directly from the hard work and dedication they devote to their business.
- Flexibility – having greater flexibility in how they live their lives, run their business and where they run their business from.
- Financial security – the knowledge that they are building an asset that they can ultimately sell whilst generating ongoing profits from the business.
- Training, development and support – good franchisees value the initial training and support programmes along with the ongoing development programmes.
- Choice of business formats – with over 930 franchise systems in the UK, ranging from micro businesses to high investment opportunities, there is a business opportunity for everyone.
- Risk reduction – the best franchisees are not true entrepreneurs; they understand the advantages of following a proven system resulting in a much-reduced risk of failure.
- Efficiency of the business format – the reduced costs compared to setting up on their own, and saving time and money whilst gaining from bulk buying, will power their introductions to banks and financiers.
- Pride and achievement – for many franchisees their business is an opportunity for them to showcase their hard work, creativity and dedication and prove to themselves they can be successful.
- Being part of the community – franchisees often see their customers, staff and suppliers as part of their extended 'family', gaining satisfaction from improving the lives of their staff and customers whilst making a contribution to their local community.
- Being part of a team – knowing they are not on their own when developing and growing their franchise, and understanding the benefits of being part of a team who share information and ideas and work for common goals.
So how to choose the right franchise and minimise the risks of business failure?
When reviewing any franchise opportunity, make sure the following elements are present in the franchisor's business system and package:
- Proven track record – the business has been in operation long enough to demonstrate consistently successful results and the processes and procedures are fully documented.
- Branding – the franchisor is building a brand utilising trademarks that have been registered with the Intellectual Property Office.
- Originality – there are sufficient USPs (unique selling points) to differentiate the products and services from your potential competitors in the market.
- Affordability – the costs of setting up the franchise, including the initial franchise fee, set up costs, working capital and financing any arrangements, are affordable and provide a return on investment within a reasonable time period.
- Profitability – the business is consistently making sufficient gross profit to cover the costs of the overheads of the business whilst returning a satisfactory ongoing profit.
- Longevity – the product or service is going to be in demand for the duration of the franchise agreement, and beyond, and it is not a fad or a craze with a limited life expectancy.
- Transferability – the products and services will have sufficient demand in your proposed territory from the target customer and client base.
- Training programmes – a good franchisor will have sufficient initial and ongoing training, development and support to help you set up, develop and run the business to the best of your ability.
- Marketing programmes – marketing strategies, plans, tools and resources are in place to effectively support as you develop and grow your franchise.
- Culture and ethos – you share the culture and ethos of the franchisor and you have trust and confidence in the members of the support team you will be working with.
Franchising is popular
According to the latest NatWest British Franchise Association annual survey of the UK franchise industry there are over 22,000 franchisees in the UK, 92% of who state they are profitable. Franchisees come from all walks of life and a wide range of backgrounds with few restrictions on age (barring the legal requirements for setting up and running a business), gender and ethnicity.
Is now the right time for you to make that change and reap the rewards of running your own franchise business?