There is no doubt that 2020 will be looked back on as one of the most challenging years, in which to do business, for a very long time. With COVID-19 running rampant across the globe, many businesses have been forced to make drastic changes to survive and many, sadly, have not made it, with more victims certain as we head in to 2021
This year has seen the economy shrink by more than 20% in the Spring, and we have also witnessed the biggest fall in GDP on record. The UK has suffered worse than other regions, due to being so dependent on the service sector. Businesses in retail and hospitality have taken huge hits, as well as the travel, tourism and transportation sectors among many others including music and events.
Alongside all of this, redundancy has risen, in line with expectations, and is currently sitting at around 4.8%. The total cost of this crisis in the UK is currently at around £210bn, with government income also taking a hit, through reduced VAT, corporation tax and income tax.
So, it is a brutal business landscape, but as with all times of disruption and change there are opportunities and positives to be drawn. For many thousands of people this year has provided a reason to stop the routine of their daily 9-to-5, and to re-assess their lives on both a personal and a professional level. Redundancy, furlough, and business closures have all meant that a massive swathe of the UK workforce has effectively been given a hard reset.
Some of the people affected by all of this have found, or are looking for, new employment, some have turned to trades, others have looked to temporary jobs such as delivering Amazon parcels, and yet others have been given the impetus to start out on their own. This year is predicted to see a record number of companies created, with an extra 84,758 businesses setting up in 2020 compared with 2019. This is equivalent to a 12.3 per cent increase year on year, which is the highest percentage growth since 2011 and the highest actual growth on record.
So, it looks like this is the year of the entrepreneur, but let us not get too carried away on this wave of enthusiasm. A look back at dissolutions showed that in 2018 – 2019 over half a million companies were dissolved, and that was in a far kinder economic climate. Small businesses have a hard time setting out at the best of times and it can be lonely and unforgiving out there as a start-up.
But what is the alternative for someone who wants to set out on their own, but does not want to take on all that risk? Well, they could do a lot worse than looking to the booming franchise sector. Franchising contributes over £17bn to the UK economy and employs over 700,000 people. The sector grew by a staggering 70% in the decade between 2006 and 2016 and has showed no signs of slowing down. It is also worth looking at the business success rate, with fewer than 1% per year of franchised businesses closing due to commercial failure, and 93% being profitable. Compare this to independent small businesses (with 20% not making it past their first year, and 60% going bust within their first three years) and you start to see why the franchise model is so appealing.
But maybe we are jumping ahead of ourselves here, let us look at exactly what franchising is. The Cambridge dictionary defines a franchise as: “a right to sell a company’s products in a particular area using the company’s name”. As a very broad definition this works, effectively you are buying into the franchisor’s brand. So, a franchisee is running their own business, but within an existing infrastructure. The benefits of this are many and obvious, as fundamentally a lot of the groundwork has already been done, and you have the added benefit of a recognisable brand name to operate within.
There is a vast array of options available to anyone exploring this avenue for the first time. When most people think of the term ‘franchising’, they probably think of their local McDonalds, and yes, the restaurant franchise sector is massive, but it is only the tip of the iceberg when it comes to available options. There are retail franchises on the high street, for clothing, fashion, sports and medicine, there’s premises-based franchising, dealing in warehousing, shipping, and product-assembly, and more recently there has been an explosion in services and home-based franchises. These can include everything from common, everyday services such as house maintenance, laundry, and landscaping to niche services such as tutoring and consulting. Home-based franchises can be more flexible around busy lives and can cover everything from administrative help to the creative arts.
Aside from the variety of sectors, there is also a whole host of options in the size and style of the business that you might want to set up. The British Franchise Association (more on them later) recently hosted their annual conference and awards, at which they had categories for every shape and size of business, from individuals running real lifestyle micro-businesses through to multi-million-pound empires, with thousands of employees. Some of these franchisee empires can even challenge their parent organisations in terms of size and revenue and have developed their own sub-brands within the franchisor’s parent brand.
It is important to recognise that investing in a franchise should definitely not be seen as an opportunity to ‘buy a job’. To all intents and purposes, a franchisee will be starting their own business, they will just be doing it with the relative safety net of working within an established brand and business structure, and all the support that comes along with that.
As with any new business venture, the importance of good research and due diligence cannot be overstated. It is critical that anyone considering this as an option spends the necessary time and energy to look at considerations that will directly affect their success. These types of considerations will include start-up costs and initial investment (fees, supplies, operations, staff, sales, and marketing), the franchise agreement, the reputation of the franchisor, your local market and competitors, the list goes on and on. A good franchisor will guide and advise through much of this and some may include some, or all these costs, in the initial fee, but the ultimate responsibility will certainly be on you as the ‘business owner’.
So how can you tell that you are talking to a ‘good’ franchisor? Well, most experts will begin any response to that question by talking about professional accreditation. In the UK, the British Franchise Association is the body that upholds standards and ensures that its members adhere to a professional code of conduct. As ‘The Trusted Partner’ in franchising, everything they do revolves around promoting ethical franchising in the UK, and ensuring standards are maintained at the highest level. Membership of the bfa denotes that the business has passed through exhaustive accreditation processes, and is operating professionally and ethically.
When considering this route, it is also key to consider your own suitability for this as a potential path for you. Good franchisees come in many shapes and forms, but, interestingly, many success stories in this arena come from an armed forces background. Experts believe that the reason for this is that these are people used to following the rules and operating within a highly regulated system. If you have dreams of wild creativity, for designing your own brand and for coming up with unique, pioneering, or unconventional ways of doing business, then it is likely that franchising is not the path for you. It is worth remembering that the most successful franchisees are ‘implementers, not innovators’.
So, there is a lot of work involved, but why would you want to become a franchisee? Well, buying into a franchise gives you much of the independence of running your own business, whilst providing you with many of the benefits of joining an already established brand. For a start, the risk of failure is dramatically reduced when you come on board with a proven business concept and operating model.
When joining a well-run franchised business, you can also expect all sorts of other benefits such as training and ongoing support, shared marketing costs with the franchisor and other franchisees, and support in difficult times from the franchisor. On top of all that a good franchisor will be carrying out constant product and service innovation, which can be difficult to find the time for when you are busy with day-to-day operations. Add into the mix the financial benefits of franchising, such as increased buying power through economies of scale, being part of a franchise group, easier-to-obtain finance from banks and other lenders, and the increased chance of a successful sale of the franchise upon exit, and it is easy to see why franchising is such an attractive prospect to many budding entrepreneurs.
For those weighing up what the future holds right now, and thinking about striking out on their own, franchising should definitely be a consideration. It can be an extremely rewarding way of going into business ‘for yourself, but not by yourself’, and it really feels like this is the moment for UK franchising to step forward into the limelight.
For more information, guidance and support about franchising please visit the British Franchise Association at www.thebfa.org
