Franchising is big business and it's getting bigger. Worth upwards of £12bn in the UK, the industry has a year-on-year growth of about 15%. Almost 1,000 companies are franchised in the UK with the average franchise business operating for 11 years, according to the 2008 NatWest/British Franchising Association survey. The survey reckons it costs anything between £25,000 and £250,000 to set up a franchise but goes on to state that 91% of franchises are profitable.
Business format franchising, as it is known, is the granting of permission by one person (the franchisor) to another (the franchisee), entitling the franchisee to trade under the trade mark/trade name of the franchisor. The benefits of franchising a business include the initial financial gain and the fact that the business is growing and being marketed to a wider audience or new geographical area. The fact that people are making an upfront investment in the business, and that their profits are wholly dependent on their hard work, means that the franchisee tends to be motivated to succeed. The average age of a franchisee is also rising. In 1992 over half of all franchisees were under 40, now it is one third. The NatWest survey also found that 25% of new franchisees came from an Asian background.
The franchisor will receive an initial fee from the franchisee (upwards of £25,000), payable at the outset, together with on-going management service fees, usually based on a percentage of annual turnover or mark-ups on supplies. In return, the franchisor has an obligation to support the franchise network, notably with training, product development, advertising, promotional activities and with a specialist range of management services. Centralised costs and overheads are usually lower for a franchise network than for a network of company-owned outlets, and a few skilled staff can manage the entire network from a single central office.
Each business outlet is owned and operated by the franchisee. However, the franchisor retains control over the way in which products and services are marketed and sold, and controls the quality and standards of the business. Because it's such a popular and relatively successful concept, there is a lot of help and information about managing and handling the franchising process.
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