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Franchising for
   Start-ups
Franchises are everywhere!
The basic idea
 Franchisor grants a
  licence (franchise)
 to another business
(franchisee) to allow
   it trade using the
   brand / business
         format
Quick stat attack on UK franchises

          Annual sales              Franchise formats
          £12.4 billion                   800+

      Average turnover
                                        Profitable?
         per outlet
                                         90% are
         £360,000
      Average age – 47
                                    Average borrowings
         66% male
                                         £70,000
        86% married
Source: 2008 NatWest / BFA Survey
Example – Cartridge World
                    Launched in Australia 1988.
                    Over 1300 franchises
                    worldwide, in 36 countries
                    280 stores in UK since 2001
                    Proposition: don’t buy new;
                    refill and save up to 60% +
                    environmental benefits

A classic use of franchising to grow
   a service sector business idea
Advantages of setting up as a franchise

• Still your own business
• Tested & developed format &
  brand
• Advice, support, training
• Easier to raise finance
• No industry expertise required
• Buying power of franchisor
• Lower risk method of market
  entry + lower failure rate
Disadvantages for the franchisee
• Not cheap! Initial fees +
  royalties & commission
• Restrictions on actions,
  including selling
• Problems selling business on
• Long-term rewards for hard
  work c/w going it alone?
• What happens if franchisor
  fails?
Franchise Costs
• In addition to the usual
  operating costs (e.g. staff, rent,
  gas & electricity)
• Initial fee: £5k – 200k
• Service fee: % of sales (5-20%)
• Advertising levy: joint pot to
  fund brand promotion
• Mark-ups: may have to buy
  stocks from franchisor             O2 is expanding in the UK
                                                via franchised shops
Advantages for Franchisor
• A classic growth strategy for a proven
  service business format
• Enables rapid geographical growth for a
  minimum investment
• Still have an option to open solus
  branches
• Cream-off the “above normal” profits
What Makes a Successful Franchise?
• Proven format, with the
  operational wrinkles
  ironed out
• Distinctive image &
  brand
• Possible to pass on the
  business format
• Potential for enough
  profit for both franchisor
  and franchisee
A choice - Franchise v Go-it-alone?
Buy a Franchise                Go-it-alone
Trusted and well-known         Keep all the profits rather
brands – easier to find        than sharing with franchisor
customers
Easier to raise bank finance   Control over all aspects of
                               business decision-making
Focus on a specific            Not restricted to one
geographical area              geographical area
Support of franchisor back-up Easier to sell the business
services, including training
Concluding thoughts
• A popular method of low-
  risk, service-sector start-up
• There are some good
  franchises, and many poor
  ones
• Still need to do market
  research before opening a
  franchise
• A half-way house for the        Thorntons offers other
  budding entrepreneur?           retailers a franchised
                                  chocolate product range
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Franchising for Startups

  • 1. Franchising for Start-ups
  • 3. The basic idea Franchisor grants a licence (franchise) to another business (franchisee) to allow it trade using the brand / business format
  • 4. Quick stat attack on UK franchises Annual sales Franchise formats £12.4 billion 800+ Average turnover Profitable? per outlet 90% are £360,000 Average age – 47 Average borrowings 66% male £70,000 86% married Source: 2008 NatWest / BFA Survey
  • 5. Example – Cartridge World Launched in Australia 1988. Over 1300 franchises worldwide, in 36 countries 280 stores in UK since 2001 Proposition: don’t buy new; refill and save up to 60% + environmental benefits A classic use of franchising to grow a service sector business idea
  • 6. Advantages of setting up as a franchise • Still your own business • Tested & developed format & brand • Advice, support, training • Easier to raise finance • No industry expertise required • Buying power of franchisor • Lower risk method of market entry + lower failure rate
  • 7. Disadvantages for the franchisee • Not cheap! Initial fees + royalties & commission • Restrictions on actions, including selling • Problems selling business on • Long-term rewards for hard work c/w going it alone? • What happens if franchisor fails?
  • 8. Franchise Costs • In addition to the usual operating costs (e.g. staff, rent, gas & electricity) • Initial fee: £5k – 200k • Service fee: % of sales (5-20%) • Advertising levy: joint pot to fund brand promotion • Mark-ups: may have to buy stocks from franchisor O2 is expanding in the UK via franchised shops
  • 9. Advantages for Franchisor • A classic growth strategy for a proven service business format • Enables rapid geographical growth for a minimum investment • Still have an option to open solus branches • Cream-off the “above normal” profits
  • 10. What Makes a Successful Franchise? • Proven format, with the operational wrinkles ironed out • Distinctive image & brand • Possible to pass on the business format • Potential for enough profit for both franchisor and franchisee
  • 11. A choice - Franchise v Go-it-alone? Buy a Franchise Go-it-alone Trusted and well-known Keep all the profits rather brands – easier to find than sharing with franchisor customers Easier to raise bank finance Control over all aspects of business decision-making Focus on a specific Not restricted to one geographical area geographical area Support of franchisor back-up Easier to sell the business services, including training
  • 12. Concluding thoughts • A popular method of low- risk, service-sector start-up • There are some good franchises, and many poor ones • Still need to do market research before opening a franchise • A half-way house for the Thorntons offers other budding entrepreneur? retailers a franchised chocolate product range
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