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Franchising - be your own boss29th of October 2013
Starting up a business can be fraught with perils and pitfalls, especially if you have little or no experience of the field you are about to enter. There is, however, a path you can take made smooth by the footfalls of others. Hartley Milner explores the appeal of the franchise business model.
You want it all – the challenge, the thrill and buzz of launching an enterprise and applying your energies to make it grow and prosper. Then, hopefully not too far down the line, you’ll reap the rewards.
It’s all there for the taking. But you need to ask yourself: do you have what it takes to be an entrepreneur, do you really want the hassle of it all, or have you simply been seduced by the romantic hype promoted by the likes of TV business ‘reality’ shows?
The reality is that it takes a huge amount of expertise, time, effort and money to establish a business, especially from scratch. Entrepreneurs who choose the ground zero option are likely to be born risk-takers who have an obsessive work ethic. So unless you have these character traits and are prepared to make many sacrifices, this may not be the route for you.
Buying a franchise can be an easier, quicker, cheaper and a less risky way to set up a business. Ongoing costs are usually significantly lower due to the marketing support provided by the franchisor. Banks are more often likely to lend to a company linked to a brand with a well-established and respected market presence.
Since the 1930s when it was first trialled in the US catering industry, franchising has become an established business model across the globe, with 10,000 franchise brands operating in Europe alone.
Business format franchising is the granting of a licence by one person (the franchisor) to another (the franchisee), which entitles the franchisee to operate their own business under the trademark, brand and systems of the franchisor for a predetermined period.
In return for start-up and ongoing fees, the franchisee receives a comprehensive package of support comprising all the elements necessary for a previously untrained person to establish and run their business, as well as continuing assistance for the length of the franchise agreement.
“Franchising, therefore, provides successful, robust opportunities to run your own business with a tried and tested formula, upfront training and ongoing support,” said Pip Wilkins, head of operations for the British Franchise Association. “That provision of ongoing support is a vital element. Whilst the franchisee is the owner of their business, it is important to bear in mind that it is the franchisor’s system and brand they are operating under.
“As a franchisee, you are following someone else’s business model and are expected to stick to the system they have shown will bring success while applying your own personality and enterprise to maximise its potential. As such, it could be said that a good franchisee is more enterprising than entrepreneurial.”
In the UK over the past 15 years, around 90 per cent of franchises reported turning a profit each year and just four per cent failed – a powerful commendation for the business model, particularly when seen against a failure rate of 50 to 75 per cent for independent start-ups within three years of trading. Franchises have also bucked the national trend during the recession. Since 2008, the sector has created 130,000 new jobs and increased its turnover to 15.8 billion euros.
“The relative success rates can be partly explained by the difference in flexibility,” Wilkins continued. “Fledgling businesses, with all the freedom they enjoy, also have to make decisions on their own or with whatever level of support and back-up expertise they can afford and accurately source. A franchisee on the other hand, even before their business has opened to customers, is given all the support they require to establish and grow. But both models still require dedication, lots of hard work, tenacity and passion to succeed.”
Franchise opportunities can be full or part-time and are broadly categorised:
Home-based - This is one of the most popular franchise options. Many businesses can be run entirely from the comfort of a home office, and still more incorporate an element allowing the franchisee to administer their operations round the clock without stepping outside their front door.
Van-based - Usually run in conjunction with a home office, van-based franchises are perfect if you like being mobile and meeting people. There is an enormous array of opportunities here, including automotive services, vending solutions, domestic and commercial cleaning, pet care, garden services and mobile catering.
Management franchises - One of franchising’s key advantages is the ability to train people with little or no experience in a specific field. Transferable skills become all-important, and this is perhaps truest in this category where management experience is the perfect background for a prospective franchisee. Rather than direct hands-on work, the success of such franchises relies on your ability to manage people, business development, sales etc, usually from an office location.
Some of the most common business types fall under this umbrella, including home care, lettings agents, business coaching, accountancy and business cost reduction services. Several domestic and commercial cleaning franchises are management rather than hands-on businesses.
Premises-based - These include traditional franchising favourites from catering and hospitality through to retail, plus a host of upcoming and fast-growing brands, estate and lettings agencies, and even children’s nurseries.
UK franchisee Chris Cook took the pure management route. The 33-year-old was keen to set up a scaleable business that would provide his family with a comfortable lifestyle for the future, but would not tie him up at the ‘coalface’. After researching his options, he chose commercial cleaning, signing up with Betterclean Services in mid-May this year.
Since then, Cook has invested more than 53,000 euros in pursuit of his ambitious goal, to have a multi-million pound business within five years. And he has got off to a flying start, building a customer base that has enabled him to hit his turnover projections for the first 18 months within just two months of the starting up.
“It has not all gone smoothly – some of the worst things that can go wrong have gone wrong,” he said. “An experienced supervisor had to leave for family reasons, and this meant we had to urgently recruit and retrain a replacement to cover a contract that had just started. I found myself dragged into the business in a hands-on capacity for a while.”
Cook paid 37,800 euros plus VAT for the basic franchise package. On top of that, he injected substantial working capital into the business to finance his aggressive expansion plans and manage cash flow. He has financed the venture to date with a mix of his own money and bank funding, which he was able to source more easily because he had a proven business model.
But is he getting his money’s worth from Betterclean? “So far, we have received all the support we were led to expect,” he said. “We had an initial training course and then ongoing training and support throughout. Then every three or four months, we attend networking sessions with other franchisees and the Betterclean management team to catch-up on best practices, discuss new business systems and marketing ideas. Its business advisor spends time working with us, so if we are visiting a prospective customer to deliver a live quotation, he will come along to make sure we are saying the right things.
“Another big plus is Betterclean doesn’t mark up its prices, which is not the case throughout the franchising sector. We pay a set 5.75 per cent fee every month. We get products at the cheapest price. So we really are getting economies of scale through being part of a bigger network.”