A recent study has shown that UK entrepreneurs are increasingly opting for franchising when looking for new business opportunities. Over the last decade the franchising industry has shown consistent growth and is now undoubtedly a significant part of the UK economy. There are a number of reasons why franchising has developed in this way.
As a concept franchising has been around for hundreds of years although it was not until the middle of the last century that it really began to develop as a common business practice. This growth has continued with latest figures estimating the economic contribution of franchises to be as high as £12.4 billion in 2007. This growth in popularity is unsurprising as franchising can be an advantageous arrangement for both the buyer and the seller of the franchise.
The most common type of franchise is business format franchising, although product and brand name franchising is also widespread. Brand name franchising is the most basic form of franchise and usually involves a simple arrangement that allows the franchisee to sell a type of product or operate under a particular brand name. Business format franchising involves a broader relationship between franchisee and franchisor that commonly includes on-going training and support.
For the franchisor offering their business for sale to franchisees has a number of benefits. For business owners franchising can offer a quicker route to the expansion of their business. A major feature of franchising is that costs and risks are reduced as they are shared between both parties. The buyer of the franchise is in effect investing in the business and the funds that they invest are then used to open a new branch of the business. This quicker route to expansion can offer significant advantages over the franchises competitors.
Additionally as the franchisee has committed their own money, franchisors can be sure that the people they have running the branches of their business are committed to being as successful as possible. In many cases franchisees will also bring with them valuable local knowledge further helping the success of the business.
Research has shown that franchising is a safer route to opening a new business. In 2005 fewer than 1% of franchisees suffered commercial failure this is in comparison to as many as 20% of all new business start-ups failing in the first year and 50% failing within the first 3 years. These results are an indication of the benefits that franchising has for franchisees.
For individuals who would like to manage their own business franchising can be a good choice. Franchisees benefit from buying into a brand for which marketing has already taken place and a customer base already established. In many cases the franchisor will provide training and support to help with the success of the business. Additionally marketing costs are shared and operating blueprints provided which will help simplify the process of starting a new business.
Customers have also been shown to benefit from franchising. A survey revealed that people in the UK prefer to buy products and services from franchised businesses. Reasons given for this preference included greater knowledge and trust in the products and higher levels of customer service.