Franchising allows a franchisor to license their business brand and model to franchisees. This allows rapid growth as franchisees can open new locations using the established brand while the franchisor maintains some control and oversight. Franchising is a popular model in the UK, with over 800 franchise formats and annual sales of £12.4 billion. While franchising provides advantages like a proven business model and support, it also has disadvantages for franchisees like high upfront and ongoing fees and restrictions imposed by the franchisor. Whether franchising or starting independently is better depends on factors like the individual's preference for control versus support.

1. Franchising for
Start-ups

2. Franchises are everywhere!

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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