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Franchising – a Winning Business Model for Economic Regeneration

Franchising – a Winning Business Model for Economic Regeneration

Categorised in: Ask Nigel    Posted: July 7, 2016

It has been my long held and passionately believed view that the franchising model offers a highly credible opportunity to assist in the regeneration of a local/regional (some would assert national) economy.

Even the UK government is finally waking up to the point that self-employment is the engine house of growth for the British economy. Increasing employment choices and opportunities have been provided for people displaced from traditional employment since 2008.

A report published in August 2014 by Office for National Statistics, entitled ‘Self-employed workers in the UK – 2014’, confirmed self-employment to be higher than at any point over the past 40 years and that the rise in total employment since 2008 was predominantly among the self-employed. This trend has helped to sustain the economic recovery and has created a growing social culture that celebrates the virtues of self-actualisation and life-style choice that underpin self-employment.

Two years on and this trend continues with over 4.5 million self-employed people, the highest since records began in 1992.

However, statistics also show that independently owned businesses are subject to a high failure rate.

In the NatWest/British Franchise Association (bfa) Survey of Franchising for 2015 research concluded that over 90% of all franchises were still in business after 2 years compared to the extraordinary fact that 4 in 5 non-franchise businesses fail within 2 years.

People who go into business don’t usually fail through lack of hard work or ambition, nor is it due to poor ideas, products or services.  Generally new businesses fail because the people running them don’t have access to the necessary advice, intellect and information that will provide them with the tools and skills required to succeed.

According to insolvency practitioners common reasons for business failure include, are as follows:

  • The business was started and run for the wrong reasons
  • The owner does not have the required combination of entrepreneurial
  • Managerial and technical competence
  • Inadequate working capital
  • Weak financial skills
  • Wrong location
  • Lack of planning
  • Poor marketing
  • Lack of strategic direction

The great news is that all of these issues can be addressed with the right advice and training, which is at the heart of franchising i.e. access to proven knowledge, best practice, tools and training.

Most people associate the word ‘franchising’ with fast food restaurants such as Burger King or MacDonald’s, but in reality franchising offers a wide variety of business opportunities across many sectors.

The scope for franchising is endless and enables entrepreneurs to start their own business, under the umbrella of an established recognisable brand with the benefits of systems and expertise provided by the franchisor, but with the freedom that comes with being your own boss.

It offers an excellent opportunity for those who have a little capital to invest but want a lower risk solution to starting their own high-growth business. It’s about being in business for yourself, not by yourself.

The British Franchising Association (bfa), the single regulatory body for franchising in the UK, was established in 1977 by a number of franchise companies to ensure that franchising in the UK developed ethically.

The 2015 survey into the UK franchise market further illustrated the size and growth of the UK market, which was worth over £15 billion annually.

Franchising employs in excess of 620,000 people – more than the army, navy and air force combined. There are more than 900 franchised brands across the UK and 38,000 Franchise Business Owners.

Economic regeneration through franchising

The physical regeneration of towns and villages depends primarily on two factors. Firstly, the willingness of Government, Enterprise Partnerships and local authorities to create an environment that attracts developers. Secondly we need to access entrepreneurs to exploit the available opportunities. Entrepreneurs are born, not made, but the desire to run one’s own business infects far more people than is generally supposed.  The problem for entrepreneurs is not just getting to first base; it is securing lift-off.

Why is the failure rate in franchising so low?

The answer lies in the peculiar nature of business format franchising. In essence an individual agrees to buy part of an established firm with an established brand and a proven business method.  In return the franchisor and owner of the brand, agrees to provide advice and support to help the franchisee establish their own business and grow. It’s a mutually supportive partnership.

Furthermore, the bfa exists to protect franchisees and ensure that franchisors are offering them a fair and ethical package.

Franchising offers a tried and tested means of going into business with good prospects, leading to a more stable business community, which strengthens the towns and villages in which they trade.

The result is robust and vibrant local economy – one that is inhabited and driven by the local population, for the benefit of the local population.

If business development is the best route to economic regeneration and franchising businesses have a much better chance of survival then it seems to be the logical solution.

Objectives of Economic Regeneration using Franchise Model

  • Remove the barriers to self-employment.
  • Explore new opportunities for existing franchise operations to invest in the region.
  • Create new social enterprises.
  • Ensure a quality supply of new entrants into the franchise sector.
  • Accessible support for start-up and existing businesses.
  • Encourage inward investment.
  • Reduce unemployment
  • Contribute to overall economic growth.

To move forward we need to establish franchised businesses for franchisees in the local area, encourage local potential entrepreneurs to come forward and ensure that social benefits are identified and harnessed through the establishment of a franchise community.

Key measures to be implemented

  • Identify new markets and map against services/products provided by existing UK franchise operations.
  • Develop new markets, services and products to, and in association with, existing franchisors.
  • Identify suitable/affordable business start-up premises.
  • Create community based support services and related social enterprises (e.g. training, childcare, etc).
  • Develop an ‘Academy of Enterprise’ to progress people into self-employment (the franchise sector in partnership with locally based FE Colleges, HEIs and private training providers.)
  • Create placement/mentoring opportunities within new and existing franchise operations.
  • Implement local procurement/supply chain regimes to support development of new businesses
  • Liaison with banks to ensure access to finance for start-up activity.

The four requirements needed to establish a franchised business in a Regeneration Zone are: bank funding; local government financial support; licence fee waived by franchisor; and some financial contribution by potential franchisees.

Simple financial investment will not in itself guarantee long-term success, even if the vehicle is franchising. Education and mentoring is key to people to gaining the knowledge, skills and confidence to establish their own business, which requires the involvement of academia.

I sincerely believe that if all stakeholders work together in a synergistic way franchising could hold the key to economic regeneration.

About the author Nigel Toplis

Nigel Toplis is the Managing Director of The Bardon Group. Nigel sees his key role as providing the vision and direction for each of the businesses, developing new income streams - across the board, recruiting customer focused and passionate Franchise Owners and providing business and management support to my Franchise Owners.

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