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Are franchises a good investment in the UK?

Are franchises a good investment in the UK?

Franchising has grown in popularity as a business model over the past few decades, with an increasing number of entrepreneurs opting for this route. The UK franchising industry has demonstrated resilience during economic downturns and has consistently contributed significantly to the country’s economy.

Answering the question as to whether a franchise is a good investment for you depends on various factors. As with any business opportunity, it’s essential that you do your research thoroughly, understand the risks and consider your goals and personal circumstances.

Why franchising is a good investment in the UK

Franchising can be a good investment in the UK, with The British Franchise Association (BFA) estimating that franchising contributes up to £17bn per year to the UK economy. Its research shows that while over half of new start-ups fail in the first two years, less than 4% of franchises fail each year with over 90% profitable within the first two years of business and 50% turning over more than £250,000 annually. In addition, most remain resilient even in times of recession due to investment by the parent company.

The UK has a diverse and well-established franchising sector, which includes various industries such as food and beverage, retail, the care sector, and beauty services. This diversity allows potential franchisees to choose a business that matches their skills, interests and market demand, increasing the likelihood of success.

The UK also has a culture that is generally receptive to franchising. The public is familiar with many successful franchises, such as McDonald’s and Subway, and often perceives them as trusted and reliable. This positive perception can help new franchisees establish themselves and build a loyal customer base.

These factors contribute to a supportive environment for franchises to succeed and grow, making it an attractive option for investors.

Should I invest in a franchise in the UK?

Investing in a franchise in the UK offers several benefits for potential investors. These benefits include:

  • Proven business model: Franchises often come with a proven business model that has demonstrated success in the market. This reduces the risks associated with starting a business from scratch 
  • Brand recognition: Franchisees can take advantage of an established brand name and reputation, which can help attract customers and build trust
  • Training and support: Franchisors often provide comprehensive training and ongoing support to franchisees, helping them develop the skills and knowledge necessary to run the business successfully
  • Access to resources: Franchisees can benefit from the resources and purchasing power of the larger franchise network. This can result in lower costs for supplies, equipment and inventory, as well as access to proprietary systems and technology that may not be available to independent businesses
  • Easier financing: Financial institutions may be more willing to lend to franchisees due to the reduced risks associated with investing in a proven business model. Potential franchisees may find it easier to secure funding for their venture
  • Network of peers: Franchisees become part of a more extensive network of business owners who share the same brand and goals. Joining a wider community can provide valuable support, advice and opportunities for collaboration, which can be helpful for problem-solving and growth

Are there higher returns and lower risks compared to starting an independent business?

The potential for higher returns and lower risks with a franchise compared to starting an independent business can be attributed to several key factors.

First, franchises have a proven business model that has been tested and refined by the franchisor. This reduces the risks associated with starting a business from scratch and increases the chances of success. In contrast, independent businesses must develop their own business models, which may involve more trial and error, increasing the risk of failure.

Franchisees benefit from the established reputation of the franchisor, which helps attract customers more quickly than building a brand from scratch. Independent businesses need to invest time and resources in building their brand, which can be a significant challenge, especially in competitive markets.

Franchisors provide comprehensive training and ongoing support to franchisees, helping them develop the skills and knowledge necessary to run the business successfully. Independent business owners may need to rely more heavily on self-learning or outside consultants, which can be time-consuming and costly.

Additionally, franchisees have access to the resources and purchasing power of the larger franchise network. This can result in lower costs for supplies, equipment and inventory, leading to higher profit margins and returns on investment. Independent businesses may have more limited access to these resources and face higher costs due to their smaller scale.

READ MORE: What are the risks of starting a travel agency franchise?

Choosing the right franchise to invest in

When evaluating franchise opportunities in the UK, it is essential to consider several key factors to ensure you make an informed decision and choose a franchise that aligns with your goals, skills and resources. 

Personal fit and commitment

Assess whether the franchise aligns with your skills, interests and goals. Consider the commitment and time required to operate the franchise, ensuring it aligns with your personal and professional objectives.

Industry and market demand 

Research the industry and analyse market trends to determine if the franchise operates in a growing sector with sustainable demand. This helps to ensure that your investment has the potential for long-term success and profitability.

Franchisor’s reputation and track record

Assess the franchisor’s reputation, history, and success in the market. Look for a franchisor with a strong track record, positive reviews from existing franchisees and a solid support system. 

Financial performance

Review the financial performance of the franchisor and their franchisees. Investigate average revenues, profit margins and growth rates to determine the potential return on investment.

Training and support

Evaluate the quality of training and ongoing support provided by the franchisor. A good franchisor will offer comprehensive training in all aspects of the business and ongoing support in areas such as marketing, operations and financial management. 

Franchise agreement

Carefully review the franchise agreement, paying particular attention to the terms and conditions and the rights and obligations of both parties. Ensure you fully understand the agreement and consider seeking legal advice to clarify any unclear aspects.

The importance of research

By researching the franchisor, you gain a deeper understanding of the company’s history, reputation and financial health. This information allows you to assess the viability of the franchise system and the level of support you can expect. Furthermore, it enables you to identify potential red flags or warning signs, such as legal issues or a history of failed franchises, which might indicate that the franchisor is not a good fit for your investment.

Industry research is essential because it provides insights into trends, growth potential and competitive dynamics. By understanding the current state of the industry and its prospects, you can evaluate whether the franchise opportunity is well-positioned to capitalise on market opportunities. 

Market research focuses on understanding the specific target market for the franchise. This includes analysing demographics, consumer preferences and local competition.

The costs for investing in a franchise in the UK

The initial investment required to buy a franchise in the UK can vary greatly depending on the franchise opportunity, industry and market. Understanding the different components of the initial investment is essential to ensure you are prepared financially. 

  • Franchise fee: The franchise fee is a one-time payment made to the franchisor for the rights to use their brand, business model and support systems
  • Equipment and inventory: The costs for equipment and inventory will depend on the nature of the franchise. For example, a restaurant franchise will require a higher equipment and inventory investment than a home-based service franchise
  • Leasehold improvements and Construction: If the franchise requires a physical location, you may need to invest in leasehold improvements, construction, or renovation of the site
  • Initial training and support: Franchisors usually provide initial training and support to new franchisees, which may be included in the franchise fee or charged separately. This training can cover business operations, marketing, management and other relevant aspects of the franchise
  • Legal and professional fees: You may need to engage professional services, such as lawyers and accountants, to assist with the franchise agreement, company formation and other legal and financial matters
  • Working capital: You will need to have sufficient working capital to cover the day-to-day operating expenses of the business, especially during the initial months when the franchise is not yet generating enough revenue to cover expenses
  • Marketing and advertising: Some franchisors require franchisees to contribute to a national or regional marketing fund or invest in local advertising to promote the franchise

The ongoing fees and costs associated with operating a franchise

Operating a franchise involves various ongoing fees and costs that you, as a franchisee, need to consider and budget for. These expenses are crucial for maintaining the quality and consistency of the franchise brand and ensuring you receive ongoing support from the franchisor. Here’s an explanation of the main ongoing fees and costs associated with operating a franchise:

  • Royalty fees: Royalty fees are recurring payments made to the franchisor as a percentage of your franchise’s gross revenue or a fixed fee. These fees cover the ongoing use of the franchisor’s brand, business model, systems and support
  • Advertising and marketing fees: Many franchisors require franchisees to contribute to a national or regional marketing and advertising fund. This fund is used for promotional campaigns, brand awareness and lead generation
  • Rent and utilities: If your franchise operates from a physical location, you will have ongoing costs for rent and utilities, such as electricity, water and gas
  • Inventory and supplies: Franchisees need to continuously replenish inventory and supplies to ensure they can provide the products or services offered by the franchise. 
  • Staff salaries and benefits: If you employ staff, you will have ongoing costs for salaries, benefits and payroll taxes
  • Insurance: Franchisees need to maintain various types of insurance, such as general liability, property and workers’ compensation insurance, depending on the nature of the franchise 
  • Maintenance and repairs: Regular maintenance and repairs are necessary to keep the franchise premises, equipment and vehicles in good condition
  • Licences and permits: Franchisees may need to renew licences and permits periodically, depending on the local regulations and the nature of the franchise
  • Ongoing training and support: Some franchisors may charge additional fees for ongoing training, support or consulting services to help franchisees improve their business performance
  • Technology and software: Franchisees may have ongoing costs for technology and software, such as point-of-sale systems, customer relationship management software and other tools required for the franchise operations.

The potential revenue streams for franchise in the UK

The potential revenue streams and profitability of owning a franchise in the UK can vary significantly depending on factors such as the specific franchise opportunity, industry, location and management skills of the franchisee. 

  • Sales of products or services: The primary revenue stream for most franchises is the sale of products or services to customers. Franchises that offer unique or high-quality products or services cater to a niche market or have a strong brand presence may have higher profit margins
  • Repeat business and customer loyalty: Franchises that provide excellent customer service, high-quality products or services and a consistent customer experience can generate repeat business and build customer loyalty
  • Ancillary services or product lines: Some franchises offer additional services or product lines, which can generate supplementary revenue streams. For example, a fast-food franchise may offer catering services, or a retail franchise may sell merchandise online
  • Cost management and operational efficiency: Franchisees who effectively manage their costs and operate their business efficiently can improve their profit margins

Successful franchise owners in the UK

Becky chose to become a member of The Travel Franchise during the pandemic, wanting to spend more time with her children and take a break from her stressful PR career. Being new to the travel industry didn’t stop her, and within her first month, she’d booked six holidays.

Like many franchisees, Becky used friends and family to spread the news about her new business, and even sold an £80k holiday through her local gym.   

Family man, Ben, wanted more flexibility and the chance to work from home, so he joined The Travel Franchise whilst still working in his 9-5 role as a regional manager. Despite never working in travel, he booked 10 holidays in his first week and soon couldn’t keep up with the demand, so he quit his job to concentrate fully on his travel agency.  

In January 2023 alone, selling almost £330k in holidays, Ben decided to employ staff to satisfy demand.

This year Ben is on target to take £1.8m in holiday sales. 

Franchise opportunities in the UK 

  • McDonald’s: As one of the world’s largest fast-food chains, McDonald’s franchise model has been successful for many years. It is known for its strong brand presence and extensive training and support provided to franchisees
  • Costa Coffee: With a significant presence in the UK, Costa Coffee is a well-established franchise opportunity
  • The Travel Franchise: A  Enables entrepreneurs who have never worked in travel before to start their own home-based travel business from just £2,995. The franchise is a part of the larger Hays Travel Group with holidays from 450+ operators and expert support and training from travel experts.  
  • Home Instead Senior Care: As a home care provider, Home Instead offers a range of services to the elderly, including companionship, personal care and specialised dementia care
  • Anytime Fitness: As a 24-hour gym franchise, Anytime Fitness has been expanding rapidly in the UK. The brand offers franchisees support in site selection, design, training and ongoing operations

The path to a profitable business future

Investing in a franchise in the UK can be a rewarding and profitable venture for entrepreneurs looking to start their own business with the support and guidance of an established brand.

The Travel Franchise, for example, offers a flexible, home-based business opportunity in the travel industry, allowing entrepreneurs to leverage their passion for travel while benefiting from the support and resources of a reputable brand. With comprehensive training, cutting-edge technology and the backing of the Hays Travel Group, The Travel Franchise equips its franchisees with the tools and support necessary for success.

As the travel industry continues to rebound and grow, now is an excellent time to consider investing in a travel-related franchise like The Travel Franchise. By joining this thriving network of travel consultants, you can capitalise on the increasing demand for personalised travel services while enjoying the flexibility and independence of running your own business. If you’re ready to embark on an exciting new journey in travel, visit The Travel Franchise website to learn more about the available franchise packages and take the first step towards a fulfilling and successful business venture.

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