This revision presentation provides an introduction to othe use of franchising by business startups

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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