An ever-growing number of people in the UK are looking at business opportunities. In fact, recent research shows that the number of individuals interested in starting a business has increased to one in three from one in seven last year. As a major part of the business scene, franchises are quickly coming to the fore in terms of offering attractive business opportunities to prospective franchisees. But is a franchise a good investment? Are franchises profitable? And what are the advantages of being in a franchise? This post tries to answer these questions.
Table of contents:
Considerations and advantages of becoming a franchise
If you’re asking yourself should I buy a franchise, you’ll need to cover all your bases before you get started. The same is true even if you were to opt for purchasing a start-up business from another business owner. The principles of research and due diligence are essentially the same. However, there are other things you need to keep in mind when considering if franchises are a good investment.
Bypassing the start-up stage
Perhaps the first consideration and advantage of becoming a franchise is the fact that you get to bypass the start-up stage of starting a business from scratch. This is because you’ll join an existing business enterprise that is established, operates on a proven and scalable business model and you’ll have none of the challenges that arise with a start-up.
Creativity vs. conformity
Yes, many may argue when answering the question ”is franchising worth it?” that the franchisee loses an element of creativity when joining a franchise network. This may be partially true because you’ll be buying into the brand and the rights to use the intellectual property of an established business. While this may end up in some levels of conformity to the parent brand, it certainly doesn’t mean that you cannot voice your ideas to the franchisor to help improve the way in which the business is run or the products or services it is offering.
Territory and geography: what you need to know
Another advantage that you need to be aware of is that, unlike start-ups, franchises typically operate out of clearly defined geographical areas. These ensure that franchisees don’t encroach on each other’s territory thereby taking business from one another and competing internally. This absence of internal competition means that the franchisee will have much more scope and room for growth and expansion as they face other competitors head on.
Financing options: the good and the bad
To answer the question “is buying a franchise a good idea?” you also need to seriously consider the financial side of things. Most franchisors will require an upfront franchise fee, a capital investment and the payment of ongoing royalty fees, among other things. You need to make sure you can come up with this money. You can always approach a lender to this end but this may take time and will require the preparation of a business plan. However, in many cases, franchisors already have established relationships with lenders who may be able to grant you up to 70% of your investment requirements.
Costs of raw materials
Because franchisors typically have long-standing and established relationships with suppliers, you as the franchisee will be required to make use of these relationships and logistics channels as part of your business endeavours. In some cases, you may feel stifled that you don’t have full freedom to manoeuvre but in other instances, you may feel quite glad that you can rely on these networks and pay lower amounts for supplies which could otherwise end up being quite costly.
Initial investment and royalty fees
Another important advantage when it comes to the question “is being a franchise owner worth it?” is the issue of your initial investment and the ongoing royalty fees that need to be paid to the franchise owner. An initial investment will be required whether you choose to begin a start-up from scratch or you buy an existing independent business anyway.
Therefore, the only costs that you’ll end up paying (apart from marketing and advertising fees) will be your ongoing royalty payments. While some may consider these cumbersome, think of everything you’re getting for these fees: a geographically defined territory, an existing customer base, rights to the intellectual property, an established brand and so much more.
Support and training
Furthermore, with franchising, you also get incredible amounts of support as well as starting off your journey with initial training to get you off the ground. No other business model offers this option and it places you in a highly advantageous position. What’s more, the existing support network of franchisees can work to your advantage. You can share ideas, best practices, talk through challenges and come up with solutions to ensure that your franchise business thrives. Hardly any business out there apart from franchising can offer this.
Brand recognition
We touched on brand recognition earlier but it’s time to delve into this topic in a bit more detail. A brand is the business’ reputation, its voice, its personality, the way it presents itself to the rest of the world. While this may not be a tangible asset, it is an asset nonetheless. A brand takes years to build and can be damaged in just a few sentences by an unhappy customer who posts a negative online review. This is why brand management is so important. And in franchising, there’s usually a dedicated department committed to brand and reputation management so that you don’t have to worry about this aspect and this enables you to focus on running your business best.
A proven business model
Our final aspect of consideration here when looking at the question “is buying a franchise a good investment?” is the business model. You need to think about the fact that a franchisor has not become successful out of thin air. Their success has materialised due to a strategic, profitable and proven business model that can be scaled. It usually takes years to refine a business model and replicate it in different markets and territories but you have the added advantage of grabbing what already works and implementing it practically straight away.
In closing
We now reach the finale: “is owning a franchise profitable?”. The answer to this question is not going to surprise you: it depends. The profitability of your franchise business will depend on the amount of work and effort you put into it. While many franchisors will offer you a hefty amount of support to ensure your business succeeds (after all, they have a vested interest in your success), your outcomes will ultimately depend on you. Many franchises, if not most are successful but it takes teams of individuals and commitment to the parent company’s ideals and mission to ensure that you experience success at your franchise operations. With this in mind, running a franchise business can be a highly successful operation if you put in the effort and have sufficient drive and determination.
