Record profits attract savvy entrepreneurs to franchising
19 December 2007
With 93% of all franchising units making a profit and the industry worth a record £10.8 billion, the lure of Franchising as an attractive business venture has never been greater.
The NatWest and British Franchise Association survey reveals the secret to the industry’s consistent success is down to an influx of savvy start ups, not the expected gold rush of wild eyed would be entrepreneurs.
Whilst the industry has grown at a staggering rate (44% in 10 years), the consistency of its overall performance is built on the success rate of new entrants. Last year more franchising systems set up than closed (75 Vs 58), suggesting a greater level of consideration when choosing franchises. The total number of individual franchise units also increased by 11% in the last 2 years.
Selecting a franchise for the right reasons is instrumental to future success according to Mark Scott Head, National Franchise Manager, NatWest, who comments: “Instead of trying to match the business with their own personal interests, we’ve seen a positive shift towards those looking for long term growth. Those looking to start up can also help themselves by first talking to existing franchisees and consider choosing an established brand.”
With the number of franchise units reporting a profit averaging out at 92% since 2000, new entrants are increasingly confident when entering the market, focusing on long term gains, not start up costs. Affordability is clearly much less of an issue, with only 9% citing this as their main reason for choosing a franchise, compared to 22% of those surveyed last year. The fact that average initial start up costs have fallen £2,300 to £44,000 in the last year will be encouraging news for new start ups.
The average age of new starters has risen to 43, highlighting the appeal of franchising as a second or third career; this may also explain the greater level of consideration when choosing a franchise. Men are most likely to be attracted to the industry, making up over three quarters of all new entrants (77%).
Personal services aimed at cash rich, time poor customers, (such as health and beauty, cleaning and garden services), and transport vehicle services (such as repairs, couriers and valeting) have seen the greatest increases in the number of franchise systems (6% each). Store retailing and property services also attracted a further 4%. Only business communication services and hotel & catering have experienced a decrease, even so the downturn is only slight (1%).
Doing their research
Encouragingly those attracted to the industry are spending valuable time weighing up their options and doing their own research. Potential franchisees look at more than one franchise system (54%), on average looking at 5 different systems. This figure is lower in sectors with strong brands such as hotel and catering or store retailing.
Most popular checks made before obtaining a franchise:
Assess value for money – 86%
Ask existing Franchisee whether their business is profitable – 81%
Ask existing franchisees for their opinion of the franchisor – 81%
Assess the impact of running the business on your family – 70%
When it comes to seeking professional advice, candidates clearly trust familiar sources, making their current bank their first port of call (57%), followed by solicitors (34%). Mark Scott comments: “NatWest looks after more franchise customers than any other bank, giving us greater first hand experience of the unique challenges in setting up a franchise. Our locally based managers are always willing to lend their experience to help new entrants make the right choices when entering into this exciting industry.”
