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To franchise or not to franchise – that is the question!

Posters pros and cons

Are you a franchise in need of an unsecured business loan?

Many small businesses in the UK either start out as a franchise or invest in a franchise along the way. The following facts about franchising may surprise you:

  • Franchises contribute an estimated £15.1 billion pa to the UK economy.
  • This is an increase of 46% over the past 10 years and of 10% since 2013.
  • Around 621,000 of people are employed in franchising in the UK, 321,000 of these full-time employment.
  • The number of franchisee-owned businesses has increased by 14% over the last two years, to 44,200.
  • On average, franchises are becoming larger as the sector matures.
  • 97% of franchisee-owned units reported profitability, with 56% saying they are ‘quite’ or ‘very’ profitable.

So, what is a franchise and what are the pros and cons?

Franchising is a method for expanding a business and distributing its goods and services through a licensing relationship with a third party: a franchise. When an individual takes out a franchise the company grants them a license to conduct a business under their name. The franchise specifies the products and services that will be offered under the company’s trademark and trade name, and also provides the franchisee with an operating system, brand and support.

The Advantages of Franchising

  • The franchise business is ready to run. There are existing operating systems, procedures and methods.
  • Training will be available for franchisees, covering areas such as pre-opening procedures, daily operations, marketing, human resources and software use.
  • There will be a specific marketing and advertising plan to enable the franchisee to rapidly get to market with their products or services.
  • There may be automated systems and solutions designed to help franchisees at the local level.
  • There will be discounts on products that the franchisees will use or sell, due to the bulk buying power of the business.
  • There will be support staff - perhaps at the company HQ - who can help franchisees with whatever problems they are experiencing.
  • In most cases, a franchise will offer a franchise owner a territory in which to work and which will be the sole domain of that franchise owner, so there will be no other company franchises within that territory.
  • Business failure rates for franchises are much lower than for other SMEs generally

The Disadvantages of Franchising

  • Franchising can be a little inflexible: there is a system which the users of the system must follow closely, and .pages of rules that franchisees must follow.
  • There will be complex legal documents to handle before the franchise is set up.
  • The reputation of your business locally is only as good as that of your franchisor. If the franchise brand runs into trouble for any reason, your business is likely to suffer at the local level.
  • You may well be limited in terms of the products and services you can offer as part of the franchise: if it’s not in the franchise agreement, then it’s not going to be permitted.

Money money money!

Before you decide whether to buy a franchise you will need to weigh up these pros and cons. If you do decide to go ahead there is then the small matter of business funding to contend with! Fees required to start a franchise can be expensive. Aside from the costs of the business itself, there will be the cost of the franchise license and an ongoing percentage that the franchiser takes either monthly or quarterly.

Whether you are starting a new franchise or growing an existing one then an unsecured business loan may be the answer. Many lenders are willing to provide an unsecured business loan to new franchisees due to them having the support of an established brand which already has in place a proven system of working. At Fair Business Loans we specialise in offering unsecured business loans to businesses that have been actively trading for a minimum of 24 months at the time of application. However, if your business has been trading for less than 24 months then we are happy to assist by directing you to organisations that we work with who do offer start up loans.

Whoever you approach for an unsecured business loan, make sure that you are clear about all the costs up front. You need to know whether there is an arrangement fee, what the rate of interest is that you are paying, and whether there is any penalty for early repayments.

At Fair Business Loans we pride ourselves on keeping things simple and accessible, and giving financial advice that is honest and trustworthy. If you would like to discuss your requirements with us in more detail we’d be delighted to help so why not get in touch today.

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