Feel good about franchising

Feel good about franchising?

Standing strong

There are various ways of strengthening your armour, should there be a financial crisis. According to Cathryn, it is important to “have a clear view of where the business is going and what your aims are for expansion… Keep good financial records and forecasts as this way you can apply for new finance before you need to use it” she explains.

“Ensure you understand how financial ratios work as they are good indicators of a business's health and these are what banks use to assess your financial health”.

Richard Holden, Head of Franchising at Lloyds TSB, reminds us that “commercial failure rates for franchisees are significantly lower than reported figures for independent businesses.

“There is a wide variety of franchise opportunities available across a broad range of industry sectors and some are better placed than others to withstand a downturn in the economy.”

Research pays

Planning for the future is a necessary component for success as well as researching the market to ensure that your product or service is in demand.

As Graeme Jones, Head of Franchising for NatWest and Royal Bank of Scotland, summarises: “It is essential that you know and research your market and have experience and skills that will stand you in good stead prior to making any decisions about a career in franchising.” Richard adds: “Banks that have a franchise unit with experienced sector specialists are a valuable source of information to assist potential franchisors and prospective franchisees with their research and planning.”  

Come rain, wind or shine…

Although planning is key, predicting the future of the economy is perhaps impossible.
The current economic climate must be taken in to account when making any decisions. As Graeme explains: “The bottom line is that any new business venture should be approached with caution and market conditions, and the global economic outlook should always be considered when making any decisions about a future business proposition.”
 
However, in any economic situation, whether it is good, bad or ugly, as a franchise, the people you recruit – your franchisees – are the ones who will see you through the hard times and into the good.

Planning and considering your franchisee recruitment is essential when looking to franchise your business. Graeme advises: “In our experience, a lot of franchisors are now looking for long term growth, as opposed to short term gain, and if the current rate of success and the sound business acumen of new entrants is maintained, there is no reason why the industry shouldn’t continue to be a viable and attractive business opportunity, despite concerns about the state of the global economy.”

Likewise, Richard says: “Franchisee recruitment is a vital element of the ultimate success of any newly franchised business… Anyone looking to franchise their business should have a good understanding of their ideal franchisee profile and whether their offer stands up well against other franchise concepts competing to recruit a similar profile of franchisee.”

Realistic, tested and reliable

There are many reasons why potential franchisees should be interested in your franchise. As Richard explains: “Generally most well-established franchise systems offer a tried and tested business model with initial training, ongoing support, brand recognition and the collective buying power benefits that a network of businesses can bring. There is evidence that franchised businesses tend to grow quicker and survive longer than new start up independents.”

Franchising can also be viewed as less risky than starting an independent business. As Graeme says: “there aren’t any worries about creating the brand, finding suitable premises, dealing with advertising (in some instances), product sourcing, training support.”

Cathryn describes franchising as a “safer option [as] a franchisee will have training and support from their franchisor.” Similarly, Graeme states: “In some ways, the risks of growing in any market conditions are reduced by opting to franchise because you don’t tie up your own capital and you don’t have the practical issues to manage around recruitment”.

Financial institutions understand the advantages of the sector, therefore, securing finance “is likely to be easier than for a conventional start up, even in the current economic conditions,” says Cathryn.

However, being financially prepared is still crucial, as Richard urges potential franchisors “to ensure that they have adequate capital and financial resources before pressing ahead. It would be advisable for them to have a contingency reserve fund in case the franchise takes longer than expected to get off the ground.”

Feel good factor

“There is anecdotal evidence that franchisors are feeling less confident about their own businesses than they were a couple of years ago” Richard says, “however there is little reason for them to have concerns about the future of the franchise sector.”

“Franchising has been established in the UK for decades - the British Franchise Association (bfa) was set up in 1977 as a self-regulatory body to oversee the development of ethical franchising. The economic climate has altered many times over the years and franchising still remains an attractive option for both new and existing franchisors.”

Graeme adds: “There are now some very well known brands involved in franchising, which is a good barometer of the strength of the industry.”

Cathryn is also optimistic: “Franchising is not an ‘industry’ as such, it is a way of doing business – a wide range of business types and sizes mean that the sector is not overly dependent on, say, retail or real estate.”

Graeme reminds us that “franchisors will benefit from entrepreneurs realising the wealth potential in owning a franchise, and whilst past performance is not necessarily an indicator, the NatWest/bfa survey demonstrates that the vast majority of franchisees are profitable and this has got to be a positive sign for the franchisors.”

* Figures quoted from Natwest/bfa survey 2007