Are Franchises A Good Investment?

Investing in a franchise could be your opportunity to gain finical freedom. For some, it’s an excellent way to become a business owner, without creating their own business.

The great thing about owning a franchise is that you do not need prior experience, and do not necessarily have to come from a background in business. In this article, we’re going to be discussing all things franchise, and consider whether owning a franchise is a good investment in the UK. 

So, if you’ve ever dreamed of having your own business, but do not have a background in business, owning a franchise could be ideal for you. Even if you have a background in business, owning a franchise can be a very smart investment. It isn’t an investment you should take lightly, though, as it requires a great deal of time and work. 

The Profit from Franchises 

Currently, there are over 48,000 franchise businesses within the UK. That’s a massive number, and it only gets better — the franchise industry created 710,000 annual jobs for people, and it’s predicted that this number will grow, as franchises will not be impacted by Brexit. 

Moreover, the franchise industry has a current net worth of £17.2 billion. On average, 93% of UK franchise businesses make a profit from their business, so only a small 7% of all franchises in the UK struggle to make a profit.

Keep in mind that it takes two years for most businesses to make a profit, so even then, it’s statistically a very low number. Interestingly, over 60% of franchises will enjoy a turnover of a massive £250,000, highlighting how profitable this industry is. 

Owning a franchise can be incredibly profitable, and one reason that many entrepreneurs are drawn to this is that owning a franchise requires less personal and financial risks, than creating their own business. It’s predicted that every year, 50% of all start-up businesses will fail.

This is usually the result of inexperience or incompetence. Let’s compare this to franchise owners. Research from bfa Natwest Franchise Survey 2018 shows that less than 1% close their business for reasons related to business failure. That means the likelihood of running an unprofitable franchise business is incredibly low, and on the flip side, it’s an incredibly fast route to become an established business owner. 

You do have to keep in mind that if you plan to own a franchise, then you’ll likely have to partner up. Most entrepreneurs partner with experienced franchise owners. It’s a very smart move because you are bringing knowledge and experience into the mix, which will save you time and save on capital.

Of course, partnering with someone may not be ideal for everyone, but sometimes in business compromise is vital, and if you do lack knowledge of the industry, it’s best to learn from someone already established, than to go straight in alone. 

What Type of Franchises Are There? 

Now, you might be wondering what your options are when it comes to selecting a franchise to own. You’re going to want to look at what businesses have a steady profit, and what businesses are predicted to soar within the next few years. 

Coffee Franchises 

Coffee franchises are an incredibly safe, and profitable business within the UK. In fact, there is a yearly turnover of £8 billion. Within the next decade, the coffee industry in Britain is predicted to reach an outstanding £15 billion turnover. 

Interestingly, Costa Coffee is one of the most known coffee brands in the UK, and franchising has greatly transformed the business. Research from bfa Natwest Franchise Survey 2018 states that Costa Coffee started with 170 units, but now there are over 2,300 Cost Coffee Franchises in the UK.

The great thing about owning a franchise, especially one within food and coffee, is that your options are wide. While you can own a coffee chain, there is also the option of selling coffee from a cart, making the model more accessible for certain entrepreneurs.

Food Franchises 

The food franchising industry is the largest franchise industry within Britain. There’s a consistently high demand for food, which makes food franchises are a reasonably safe option. However, we do predict some changes within the next decade. 

When you think of food franchises, most people will think of big, fast food chains such as ‘McDonald’s’ ‘Burger King’, or ‘Dominos’. Rightly so, these businesses are flourishing within the UK, and are doing very well for themselves. However, the public is beginning to change their eating habits.

Fewer people are opting for fast food, and are leaning towards healthier food franchises, In fact, when it comes to juice and smoothie bars franchises, there has been a 12.5% increase in the past few years. It does not look like this trend is going to stand still, we predict that healthier franchises will likely increase in the next decade and that they could be some of the most profitable franchises in food to invest in. 

Home Care

When people think of investing in franchises, they usually think of food and coffee, but that isn’t your only option. Think about what people really need, what, as a society, we cannot live without. Well, one of these vital institutions is a caring home. 

As a population, our life expectancy is increasing. Care homes are in demand, and we predict that this demand is only going to increase in the coming years. They are vital, as they provide shelter, care, and services to elderly people. Interestingly, like the food industry, you do not need any experience to invest in a home care franchise.

The great thing about investing in home care is that while you will make a profit, you also have the chance to change the lives of people. It truly is a caring service and can be very rewarding to invest in. 

The Downside of Franchising

While we have discussed the positive aspects of franchising — such as the stability, finical security, and likelihood of success, there are downsides to investing in franchising.  

The Lack of Creative Control 

If you want to be a business owner, then the freedom of making your own business decisions is likely appealing to you, after all — you want to be your own boss. Well, that isn’t going to happen here. While you will get financial security, and you will be the owner of the franchise, it isn’t your company, and you have to play by the rules that the business sets. 

So, if you invest in a franchise, you will get extensive training on how the business should run. You will have strict guidelines that you are required to follow. There may be company policies that you are obligated to follow, even if it goes against your own natural intrinsic, or your own judgment. If you break the rules of your agreement, you can get into serious legal trouble, and it can lead to your contract being terminated. 

Moreover, when it comes to the general aesthetic layout of the business, you likely will not have creative control over that, either. For some, that is no problem and is really of no concern to them. For others, this will be heavily annoying, as many entrepreneurs feel as though their creativity has been restricted. You have to remember that most franchises look the same, it’s not an individual business model. 

The Fees

If lacking creative control does not phase you, then the initial fees, and the continuing fees might. 

The initial fee to start up a franchise is variety. In some cases, it could be under £1000. In other cases, it could be much, much more. The other consideration is it’s very likely you will have to purchase any materials and equipment from your own pocket, which can cost you within the hundreds of thousands, depending on the business.

In other cases, you might not even be a considerable candidate, unless you can bring to the table a considerable amount of capital beforehand, so it’s not always a suitable business for entrepreneurs. 

Of course, that’s just the start. As it isn’t really your business, you cannot expect to keep all the revenue. The franchisors will require a certain amount of your earnings, which is called royalty fees. While that might be all fine, if you are not making a profit, or profits are minimal, you still have to pay your royalty fees.

Depending on the set amount, you could find yourself in debt. Keep in mind that it takes most franchises two years to gain any real profit, so it is vital that you come with capital or a substantial loan. 

The flip side is, that compared to starting your own business, these fees might still be less than what you would be paying. Plus, there is added security in knowing that you, likely, will be franchising an established, profitable business. 

So, Are Franchises a Good Investment in the UK? 

Ultimately, it comes down to the individual. If we speak objectively, then yes, as long as you invest in an established franchise, that has a history of profit and a prediction of further profits, then you should find yourself in a very secure position. It allows you to have finical freedom, and become a business owner.

The hang-up is that it’s technically not your business, as it’s a franchise. While you will be in control of the daily operations, you will still have to abide by the guidelines and pay your royalty fees. Ultimately, however, franchises are a good investment in the UK. 

Matt Roberts
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