Franchise industry reports record £12.4 billion turnover
Franchising continues to flourish in the UK as the new NatWest/British Franchise Association (bfa) survey reveals
The NatWest/bfa Franchise Survey 2011 shows how franchising remains at the forefront of the UK’s recovery. Throughout 2010, franchising further increased turnover by £600 million (up five per cent) to £12.4 billion. Since 2006, the sector’s turnover, and number of franchise systems, have both grown by 15 per cent, despite a UK GDP growth rate of only 9.4 per cent in the same period.
The number of franchise systems operating in the UK has grown over the past year, increasing the number of franchise units to 36,900. An extra 56,000 jobs have been created, taking total employment in the sector to 521,000. Franchising is also helping to drive international trade. Around a third of UK franchisors have units located outside of the UK, additionally, 38 per cent of domestic-only franchises plan to expand abroad.
Peter Ibbetson, Chairman of Small Business at NatWest, said: “With 87 per cent of franchisors planning to expand in the year ahead, we’re already seeing strong demand for our new £100 million franchise fund. We bank with more franchise businesses than anyone else, so our discounted loans will play an important role in financing further industry growth.”
Brian Smart, Director General of the bfa, said: “Yet again franchising has demonstrated its inherent tenacity and stability, despite a tough climate last year. This means many more sustainable business start-ups and jobs have been created by ethical franchising – further helping the UK economy get back on its feet.”
The formula of a locally owned and run enterprise, driven by a small business owner, with branding, economies of scale and support from the wider network, gives the business a far better chance of success. However, this is reliant on the business being set up properly in the first place and the right people becoming franchise owners.
Four out of five surveyed say being part of the franchise model offers them a competitive advantage over similar businesses that aren’t. Appearing to be a larger business, standardised products/services and quality expectation were cited as the three main advantages. Franchisors also see better prospects for themselves than the rest of the economy, with 75 per cent expecting improvements for their business over the next year while only 31 per cent expect the economy to pick up.
The franchise model is becoming an increasingly attractive option for those looking to run a business for the first time. Two thirds of franchise businesses trading less than two years reported to make a profit. Average start-up costs also reduced for a second year to £46,600.
While nine out of 10 franchise owners remain profitable, confidence may have taken a dent for some as one-in-eight rely on the public sector for more than 90 per cent of sales – proving the industry is not totally immune to the recent economic fall out.
For those who are attracted to this business model as a way of starting their own business, but with added security, will take great confidence from these findings. However, they should still take their time in moving forward and ensure they fully research the businesses they are looking at.
Membership of the bfa: The bfa accredits franchisors using a stringent set of criteria based on a code of business practice. All members are then listed on the bfa’s website (www.thebfa.org). To not have bfa membership does not automatically make a business a bad franchise, but you need to ask why.
Investment level: Levels of investment range from smaller amounts, that you may already have available, to larger amounts that you may need to take out a bank loan for. Make sure you approach RBS/NatWest; HSBC; or Lloyds TSB/Bank of Scotland – these are the only banks to have specialist franchise departments.
Lifestyle: Franchising is not a hobby. You will need to make sure that you are happy with the commitments needed for this new business. You will also need to consider the support and understanding of those around you such as your family and friends.
Research: All franchises are different, so do your homework. Always speak to existing franchise owners, make sure you understand all the business operations and ensure that you fully understand the investment costs.
Professional advice: There are a host of professional advisors accredited by the bfa that specialise in franchising. As a minimum make sure you have any document checked by a franchise solicitor.
Written by Tom Endean of the bfa (pictured right, top)