Franchise focus: An introduction to franchising

More than four years since the financial crisis began, franchising remains a popular choice for people looking to start up their own business - not least because franchising can offer more support than starting a business alone. We catch up with Graeme Jones, NatWest's Head of Education, Not for Profit and Franchising, to find out who franchising suits and where you can go for franchising advice.

Is now a good time to start a franchise, Graeme?

It's as good a time as any. Previously, in times of recession, when people have been made redundant, franchising has appealed to people looking at getting into self employment. That's because they need the business idea, the systems, the product and support of a franchise system to make things easier. It's fair to say the franchise sector has performed well during the recession, since 2008, with a limited number of failures in the sector. So it's good news if you've done your research and made your decision carefully, selecting the right franchise.

How have franchises typically performed compared with other types of small businesses and start-ups during the last few years?

Across the sector as a whole, franchise businesses compare favourably. They tend to be profitable at an earlier stage in their life, and are more sustainable - in as much as it's not unusual for an independent start-up [i.e. a non-franchise start-up] to cease to trade, for whatever reason, after two or three years. That's not the case in franchising. One reason for that is that you are entering into a contract, so you sign up for a franchise for five, 10, 15, 20 years. You also get support: from your franchisor [who runs the franchise system you're part of], and also, if you've selected a franchise with a good strong network, other franchisees who've come across issues you'll face.

Why should people hoping to start a business consider franchising?

One of the head-starts you get as a franchisee, as an example, is that consumers may already be aware of the brand and products and services that are supplied, whether that's an optician or retailer or restaurant or service-provider. Whereas with an independent start-up business, you're having to create and establish the brand in consumers' minds, and that takes time.

Is a franchise more secure than an independent start-up in today's climate?

People need to make sure that they do adequate research when thinking of starting a franchise. That means they need to be comfortable with the service and product themselves, and they can see the value it would bring to the customer.

They also need to speak to as many franchisees of that franchise system as they can, to ask them how they found their experience, and how they've found the support particularly over the last few years when trading has been difficult. Unhappy franchisees would be a warning indicator that everything's not as it should be.

They should also consider that the franchise market is not regulated. However, the British Franchise Association (BFA) is a membership organisation whereby the members adhere to a code of conduct. Not to say franchises who are not members of BFA are poor franchises, just that franchises that are members have to meet some standards. There are strong brands who aren't members, but generally BFA membership would be seen to show certain standards.

What type of person particularly suits becoming a franchisee?And who might it not suit so much?

The advantage of franchising is that it's good for people who are motivated and passionate about what they do, who recognise that they might need support where they don't necessarily have experience managing people or with sales processes or product development.

But if you are very entrepreneurial and don't like working in a box, franchising is not for you - if you want to go off and create your own burger, that's not going to work in a franchise model. Because the franchisor will be keen to protect the standards and service and the products and the image of the franchise network and its brand, for itself and for the other franchisees.

What levels of investment and experience are typically needed to become a franchisee?

You don't necessarily need experience in the sector you looking to set up a franchise in. The franchise system gives you that know-how.

It's difficult to tell how much money you'll need as every franchise system varies, but probably on average you'd need about £60,000. Obviously if you're purchasing a franchise where you're providing a service and can use space at home, or if you have your own vehicle for work, or so on, then the cost would be lower. If you're getting involved in retail or food or beverage, then generally the cost is much higher. But our surveys indicate that only half of people who take on franchises need to borrow money from the bank - they're often able to fund it from savings, or through family and friends.

What support is available for franchisees?

When it comes to support, you'll find that the BFA, as an example, runs workshops through the year aimed at people who are thinking of becoming a franchisee. There are also exhibitions throughout the UK - the largest is at the NEC in September or October each year.  A few banks have specialised franchising support, of which NatWest is one. We have a network of externally accredited franchise managers, who are able to provide franchisees with a suitable financial package.

What kind of franchises seem particularly popular at the moment, and why?

They're quite broad, but we're seeing good growth in areas such as food, beverages, coffee, the services sector, retail, and domiciliary care. You don't need to have had experience in healthcare to take on a domiciliary franchise, as it's a management franchise - i.e. providing care rather than doing it yourself. It's more about marketing.

Where can people find out more about franchising?

As well as franchise shows, there are a number of websites advertising franchise systems, there's NatWest's franchising pages, the BFA website, and plenty of websites offering franchising advice.

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