You may already be familiar with the term franchising, but aren’t sure exactly what it involves.
Well actually, there is probably a lot more to the concept than you think.
Most people, when they think of franchising, picture global fast-food giants such as McDonald’s, KFC and Costa. But there are actually franchise opportunities in most business sectors – property investing (like here at Sourced) being a more recent recruit to the market.
In a nutshell, franchising is a business relationship where the franchisor allows another individual (a franchisee) the right to use the former’s branding, trademark and publicity materials, as well as their business processes and systems. The franchisee operates the business, bearing in mind they have the company’s reputation to uphold.
In terms of cost, for the privilege of running a franchise of an already well-established and successful business, the franchisee pays a one-off sum upfront and then a percentage of their ongoing profits. At Sourced, however, we do not take a percentage of your turnover in royalties.
Pros of running a franchise
- The franchisee has the peace of mind that the business model he or she has just bought obviously works (since there are other franchisees out there operating the same one very successfully);
- There is training and support from the franchisor – both initially and ongoing.
- There are no start-up costs traditionally associated with starting up a business from scratch i.e. with a franchise all the publicity and marketing materials will be provided;
- There’s no need to think about future product or service enhancements and variety, since these will already have been worked out at the franchise’s HQ.
- Relationships with suppliers have already been worked out and established.
- The franchisee has exclusive rights to operate in a particular area i.e. no other franchisee will be able to ‘steal’ their customers by providing a similar offering on that patch.
Cons of running a franchise
- There may be certain restrictions as to how to do business, meaning the franchisee isn’t completely in control of the running of their company;
- Bad franchisees can negatively affect the reputation of the business;
- There will be regular inspections by HQ;
- When a franchisee moves on it may take some time to sell the franchise since the new franchisee will have to be approved by HQ.
- Mainly though, the majority of franchisees agree that the advantages of buying a franchise far outstrips any disadvantages. Certainly, the number of franchise start ups in the UK has grown by 10% over the past four years. And, according to the bfa/NatWest Franchise Survey, 97% of franchises here are not just profitable, but prospering, with an average £250,000 turnover each. And these ‘sharing’ businesses are boosting the UK economy to the tune of £15.1 billion annually.
Here at Sourced, we can’t think of a better business learning opportunity than to be coached by someone who is already a successful operator in their field. And that’s why each and every one of our Sourced franchisees have already established themselves as prosperous property investors. Not only will they be able to point new franchisees in the right direction, so to speak, but they’ll also point out any potential pitfalls along the way (in other words, they’ve already made those beginner mistakes for you).