38 . Glasgow Business October 2016
QUICK START UP IS A FRANCHISE FOR YOU?
Buying a proven business might be a safer and easier way of setting up on your own S
uccess in business is never guaranteed, but there are ways of improving the odds in your favour. When you’re starting a new company, it helps hugely to get
someone else to take the strain and do much of the groundwork for you. Tat’s what happens when you take on a
franchise. You’re paying to buy into a proven brand along with its reputation, operational systems, support, training and marketing systems. In return for this, you normally pay an initial fee and an ongoing royalty. Some of the world’s biggest corporate names,
including McDonald’s, Burger King, Ben and Jerry’s, and Hilton Hotels and Resorts operate using this business model. But it isn’t just for giant global enterprises. At the other end of the scale, one-person home businesses can run extremely effectively in the same way. Originally an American concept, franchising
has developed into a mature and sophisticated form of trading across the UK. And it’s popular and growing. In Scotland, the size of the sector increased by 14 per cent in 2014-15. It is now worth £800 million annually, with some 2,200 businesses covering 500 different brands and employing more than 32,000 people. Scotish turnover is expected to rise to £1 billion by 2020. Pip Wilkins, Chief Executive of the industry’s
leading trade body, the British Franchise Association (BFA), pointed out that it is a sector which has successfully weathered the recession, with numbers growing by 10 per cent since 2007. One major reason, she said, is the security that
it offers. “Franchising is a comfort blanket – you have the backup of investing in a proven business model,” she added. “Tere is something for everyone out there and it need not be expensive. You can buy into an entry level franchise for between £3000 and £5000.” Pip does point out, however, that investors
need to be on their guard, as there are poor and even scam franchises out there. “A good starting point is to look at if they have BFA membership as if they do, they will have gone through an accreditation process.” One universal suggestion from advisers is to
talk to other investors already operating in the same franchise and discuss their experiences. “Tey’ll tell you the full story, warts and all.” Another expert is Chair of the BFA’s Scotish
forum Suzie McCafferty, who successfully operated international franchises in cartridge supplies and recruitment before forming her own Edinburgh-based consultancy, Platinum Wave. She said: “Franchising is popular because it’s
a step into a new industry with a safety net and ongoing support. It’s being in business for yourself, but not by yourself.”
about geting market share while increasing brand awareness and maintaining standards. “It has to be a win-win scenario, and franchisors
tend to have rigorous recruitment processes. Tey need to be confident that their franchisees have the right skills, the ability to follow a system, and to understand the company values. Tey will also want to see a robust business plan.” Tose with approval will score a significant
advantage over traditional startups in access to finance. Banks will typically lend up to about 70 per cent of total funding requirement to a proven franchise with a good track record, compared with much less for a regular start-up. Richard Holden, Head of Franchising at
Lloyds Banking Group, which includes the Bank of Scotland, said: “It’s a tried-and-tested business model with training and support as well as a safety net. It’s less risky.” But, he warns, franchising isn’t for everyone.
WHAT TO BE AWARE OF WHEN TAKING ON A FRANCHISE... • Always speak to other people in the same business, but don’t just approach contacts given to you by the franchisor. Find others and talk to them – they may give you a fuller picture.
• You might want to consider buying an existing franchise instead of starting in brand new territory. A third of franchise deals are resales.
• Make sure you’ll enjoy working in the business you’ve chosen. It’s pointless going into it if you won’t.
• You normally sign up for an initial five years, so it’s a long-term commitment.
• Check you’re not buying into a trendy sector which will have lost its popularity before your franchise contract has run its course.
• Make sure the franchisor has a good understanding of the part of Scotland you’re planning to operate in.
• The franchisor won’t do everything for you. You’ll need to be determined, committed and work hard in order to succeed.
Sectors which are favourites in Scotland, she
added, include food operations at the most expensive end of the sector – these can cost £500,000 or more. Businesses such as children’s activities are at the least costly end. “People may decide to become franchisees
because they have been made redundant, because they’re fed up of a corporate culture or because they want more flexibility. For the franchisor, it’s
“It’s about following a proven business model, not doing it your way. Richard Branson, for instance, wouldn’t make a very good franchisee.” Eric Galbraith, Corporate Partner with the
Scotish legal firm Brodies, has been involved with the franchising sector for more than 20 years. He said it is critical a franchisee gets full brand support. “It’s also important to know what you want to
get out of the relationship. Franchisees do have a sense of ownership and to some extent they are the brand, so they can feel quite proprietorial.” What should franchisees look for in an
agreement? “You want the franchisor to do marketing, to protect the brand you have paid a fee to join, and to ensure you can get the supplies you need. You also must receive appropriate training and ensure that you have visibility around change – for instance, you don’t want to find that in year two, your costs have doubled. Without a doubt, though, the relationship between them generally works well. Tere’s a terrific mutuality of interest there.” Another legal expert in the subject is David
Kaye of Glasgow firm Harper Macleod, who is accredited by the BFA as a Qualified Franchise Professional. He believes franchising has done well because of the recession. “Te downturn created a tremendous requirement for people to think about and look at other opportunities.” Scotland is lucky, he added, as it has excellent
back up for franchisees, including world-class consultancies. “However, not enough people take legal advice. Agreements are generally weighted in favour of the franchisor and we offer a fixed fee deal to review a contract. It allows people to understand the pitfalls and can identify a good franchise as opposed to a bad one. We want people to take things on in the right way, ideally join the BFA, and be ethical and successful. Tat’s good for them, and it’s good for us too.”
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