1. Franchising
and
Business
Start-ups

2. The basic idea
Franchisor grants a licence (franchise) to another business (franchisee) to allow it trade using the brand / business format

3. Quick stat attack on UK franchises
Annual sales
£12.4 billion
Franchise formats
809
Average turnover per outlet
£360,000
Profitable?
90% are
Average age – 47
66% male
86% married
Average borrowings
£70,000
Source: 2008 NatWest / BFA Survey

4. 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

5. 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

6. Disadvantages for the franchisee
Not cheap! Initial fees + royalties & commission
Restrictions on actions
Problems selling business on
No industry expertise required
Long-term rewards for hard work c/w going it alone?
What happens if franchisor fails?

7. 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

8. Franchises and BUSS1 Specification relevance Potential angles
Spotting an opportunity
Market research
Business structure / organisation
Why start-ups succeed & fail
Potential angles
Franchise or go it alone?
Reducing risk of start-up
Sources of finance
Cash flow forecasting

9. Concluding thoughts
A popular method of low-risk, service-sector start-up
There are some good franchises, and many poor ones
Still need market research
A half-way house for the budding entrepreneur
Thorntons offer other retailers a franchised chocolate product range

10. How do you protect an idea?
Copyright
Patents
Trademarks