RSS feedsBusiness owners are carefully monitoring the uncertain economic state and, for many, dreams of expansion are being housed. With UK banks tightening the lending purse strings, companies are considering options to remain stable in the current downturn.
However, plans do not have to be put on hold for the right type of business. Franchising is a viable alternative to securely expand in these uncertain times, resulting in a flourishing business when the economy stabilises.
Franchising continues to grow as a method of doing business around the world. The advantages include quicker growth through more highly motivated operators and using external finance and effort to open and run the outlets. When times are tough, it pays to be ahead of the game and take franchising as a serious means of business development.
Those who succeed are usually the ones who take the most risks. Investors and business owners do not wait for success to come knocking on their door. Entrepreneurs have built up lucrative enterprises by operating differently to the rest of the crowd.
All in the… timing
In business timing is everything, so identifying the right moment to act is crucial for success. When the economy is uncertain, starting a business or expanding an existing company when others are being more cautious could bring great benefits. Whether a franchisor or a franchisee, being on the front foot when the market returns to normal will mean that your business is better-positioned to take advantage of a sudden upturn in fortunes.
Contrary to popular belief, when the market is down it is possible to continue proposed business plans and realise that lifelong dream of independence or expansion. However, rather than going it alone, teaming up with a well-structured system as a franchisee or taking on the enthusiasm of a franchisee and become a franchisor, is a much safer option.
Franchising is a commercial relationship in which one party allows the other to operate clones of a proven business system in return for initial and ongoing fees. The fee level varies greatly depending on sector but, in all cases, the amount paid must be a fair reflection of each party’s investment in the operation.
Business-format franchising involves duplicating a successful business system by teaching others how to operate it. Those being taught make their own financial investment in opening the unit, while those doing the teaching generally own a brand, which they want to grow and protect. It is in both of their interests to work together and operate profitably.
To begin with, a proven and successful business system must be in place, one which can be easily learned by others, operated in outlets and be simply acquired and converted. It must also be profitable enough for both parties (the franchisor and the franchisee) to make a good return on their investment.
The business system must be supported by excellent training facilities and management reporting processes, which make it easy to track progress and put things right if they start to go wrong. While the franchisor-franchisee relationship is, out of necessity, governed by a detailed legal agreement, it is far more important to deal with operational issues that arise by discussion and negotiation rather than getting lawyers involved. It helps to have, or develop, a culture which is co-operative rather than dictatorial.
Is it right for you?
Franchising will not bring success for every business. Careful and in-depth evaluation must be conducted to weigh up the pros and the cons. Having concluded that franchising is the route to follow, it is important to evaluate the proposed business plan to get a preliminary insight into the chances of success. This can be done by evaluating objectives against specific criteria, such as whether the business is a proven, easily replicated, profitable and learnable business format, understanding the motivation and how the proposal fits in with the overall long-term strategy of the business.
While it may not be possible to meet all requirements, being able to commit to a certain proportion positions a company favourably when evaluating a proposed franchising idea. Conducting this in the early stages is vital to avoid spending large sums of money setting up a business system that will not work in practice.
Franchising truly is the way to grow successful businesses regionally or nationally. Many businesses have even used franchising as a strategy to achieve their international brand expansion plans, often when they do not franchise in their home market. Banks prefer to lend to franchisees of respected franchisors, so franchisees can find the money to set-up much easier, even in the turbulent times.
Let it grow
Belvoir, one of the UK’s largest speciality lettings agencies, has 130 franchise territories nationwide and recorded 25% year-on-year growth. The company plans to expand to more than 300 franchised territories within ten years.
‘Ten new franchises have opened this year and several more are launching in the next weeks,’ says Dorian Gonsalves, sales director. ‘The rental market is a recession-proof industry and current instability in the financial world means more people are choosing to rent rather than buy.
‘Belvoir franchises have never been busier and rental yields are increasing. We are actively pursuing enquiries from estate agents and lettings agents which would like to join a national network. There has never been a better time to be a Belvoir franchisee.’
Extra toppings
Papa John’s pizza has experienced a successful start to 2008, with the company opening eight stores during the first five months of the year.
Alan Mason, director of franchising for Papa John’s pizza, says: ‘This year we targeted 25 new store openings across the UK and judging from our performance since January we are well placed to achieve this objective.
‘So far this year we have attended two major franchising exhibitions, GMEX in January and Olympia in April, and the feedback we got at these suggests that the current economic climate is not putting people off becoming franchisees.
‘The number of enquiries, leads and, more importantly, people who have signed up to become Papa John’s franchise owners, is higher than we experienced at the same point in 2007.
‘We also have a number of existing franchise owners who are looking to expand their businesses and open new Papa John’s stores. In fact, 70% of our new stores that have or will open by the end of June will be by existing franchise owners.
‘In our experience, the credit crunch and bearish outlook that many have adopted has, if anything, lead to an increase in the numbers of people interested in franchising with Papa John’s in 2008.’
Brian Duckett is managing director of Howarth Franchising
