6 Franchising for Start-Ups
The franchise approach
A business idea for a start‐up doesn't have to be original. Many new businesses are formed with the intention of offering an existing business idea. The use of franchises is a great example of that.
The basic idea for a franchise is this.
A franchisor grants a licence (the "franchise") to another business (the "franchisee") to allow it to trade using the brand or business format.
That might sound a bit complicated! The trick is to remember that the franchisor is in
charge - the franchisor is the original owner of the business idea.
Franchises are a significant part of business life in the UK:
• Franchises generated annual sales of £12.4 billion in the UK in 2007
• There are over 800 different franchised business formats in the UK and that number is rising by around 5% each year
• The average sales turnover per franchise outlet is £360,000
• 90% of franchises are reported to be profitable
• A franchise has average borrowings of £70,000, suggesting that banks are happier to make loans to franchise businesses than other start‐ups
• The typical franchisee is aged 47. 66% are men and 86% of franchisees are married!
• Franchises are particularly popular in the service sector
Examples of well-known businesses that use franchising to expand their operations include: