In the UK there are over 1,000 different franchise systems that operate through around 45,000 franchisees who collectively generate something over £17 billion to the UK economy. So, it’s fair to say that franchising is very successful! Contrary to what most people think, franchising is dominated by small businesses and not PLCs. s.
A business within a business
An interesting fact is that the process of actually franchising a business is usually more profitable than the business itself. Entrepreneurs will pay you handsomely to learn what you already know. From a pure financial perspective it is common that income from franchising often exceeds income from normal activities. This is because franchise fees carry no costs, £100k in franchise fees means £100k in profit.
What the statistics say
Individual franchisees are far more likely to be successful than non-franchised businesses. Most reputable surveys confirm that in the franchise sector over 90% of franchises are profitable, whereas more than 50% of non-franchised business are insolvent within 3 years. So franchising is proven and trusted by franchise investors as a means of expansion. All this means that when it comes to growing a company franchising, adding franchised branches to your company is far less risky than adding managed sites.
Lower costs
Franchisees provide the capital and meet all the operational costs of expansion. All staff that are employed are the franchisees responsibility. All stock that is held is paid for by the franchisee. This means that franchised businesses are usually very lean and efficient.
Faster growth
A successful franchisor is usually only restricted by the speed they can train and support their franchisees and the fastest growing brands can sell several dozen franchises each year. If your current business currently operates from one location, or just services one area then what imagine the revenues you could attract by multiplying what you do by 12, or 24, or 36? Some franchise brands have hundreds of franchisees!
Economies of scale
As a small business grows into a bigger business then all sorts of things work in your favour. This is as true for franchises as it is for non-franchised businesses. Those economies of scale widen your net margin and make each of your locations more competitive against their independent local competitors. This is one of the reasons why you see some multiple chains operating in locations that is simply not viable for an independent.
Brand value
As your trading name becomes more prominent so too does the value in your trading name. This puts you on the radar of corporate acquisitions should you want to sell up. However the converse is also true, your new found status also gives you the clout to consider growing via acquisitions yourself. Either way your company has more value with a network in place.
Preferred leases
Brands that have multiple locations are preferred by many landlords for primary locations. Given the choice between an independent and large multiple many landlords would favour the multiple, and that’s what you are when you have a network of franchisees. This further grows your brand value and because the locations are more valuable your average profitability per location also rises.
Going international
Working from a multiple base in the UK gives you tantalising options to expand internationally. In franchising this often means selling entire country rights to companies or entrepreneurs who are best placed to exploit their own country. Even the smallest UK franchisor would likely be able to command a six figure initial payment just to own the brand for a small country, and then ongoing royalties and fees on top.
This content was written for FSB by Lime Licensing Group
Lime Licensing Group is an expert provider of professional franchise consultancy and brand licensing services.