Franchising is back in the spotlight, with the news that Jobcentre staff will now be offering it as a possible solution to the unemployed.
The press release that announced this said, under the heading “Jobcentre Plus to promote business start-ups”, that its advisers will “also explain opportunities for running franchised businesses. In countries such as the USA, franchising opportunities make up a far greater proportion of the opportunities for people to move back into work following unemployment.”
So could franchising really solve the problems of people in need of a job – including older jobseekers, in the UK too?
The statistics are not encouraging. There are probably too few good-quality affordable franchise opportunities available here to have much of an impact on workless numbers. Jobcentre staff may either end up giving up on the idea, or find themselves promoting dubious business opportunities that aren’t in fact properly-run franchises.
So what is a franchise, and how many are there available?
We choose to follow the definition of “business format franchising” used by the British Franchise Association (BFA). The BFA is the main representative body in this country for franchisors, and is in charge of the self-regulation of the industry through a voluntary accreditation scheme. PRIME recommends only dealing with BFA-accredited franchisors.
According to the BFA
Business format franchising is the granting of a license by one person (the franchisor) to another (the franchisee), which entitles the franchisee to trade under the trade mark/trade name of the franchisor and to make use of an entire package, comprising all the elements necessary to establish a previously untrained person in the business and to run it with continual assistance on a predetermined basis.
The first point about a franchise is that you have to buy it. In our own report into the franchise market we came to the conclusion that there is not much available that meets the definition above for less than £10,000 or £12,000. Many franchises cost substantially more – especially as you don’t just need to buy the franchise, but buy the stock, a van, premises or whatever else is necessary to get the business going.
Every year the NatWest Bank conducts a survey of the UK franchising industry, in conjunction with the BFA.
According to the latest 2010 survey, the average franchise fee is now £15,300. But the average investment is £46,700 (and more in the hotel and catering sector). The average initial outlay, taking into account everything needed to become a franhisee is £63,900, though this varies depending on the sector. The majority of people have to borrow to become a franchisee. So unless these unemployed people Jobcentre are talking to have a good credit rating or plenty of money (for example redundancy money) the whole idea is beginning to look a bit of a non-starter.
The other limitation to consider is how many good franchises there are out there to purchase. If we consider BFA-type business format franchises only, the NatWest survey identified 845 franchise systems active in the UK. However, not all of them are continually recruiting. Indeed, this is a good sign – once a franchise system has covered the country and started to saturate its market, to keep adding more franchisees to the system is just making it more difficult for existing franchisees to make a living.
The NatWest survey reckons there are 34,800 franchise units out there – franchise unit means a business run by a franchisee (who could of course employ other people, as big franchises like McDonald’s and Toni & Guy do). However the list includes many smaller franchises, including businesses that can be operated by one-person – for example Chips Away or PC Pal.
But these 34,800 units are not all up for sale at any given moment. In fact the survey finds that the annual churn is only 6.7 per cent. If all of these were available for sale it would equate to less than 2,500 units available annually for new franchisees.
So Jobcentre is unlikely to be able to make much of a dent in the number of people claiming unemployment benefit by turning to franchising. It is the case that some countries – notably Australia, have many more people working in small franchise businesses. But this took many years to accomplish, and including a tightening up of regulation of the sector so people purchasing franchises at the low-cost end of the market less to worry about when parting with their money.
In the UK, despite the smallish numbers of new franchisees required, the NatWest survey found that over half of franchisors (the companies selling the franchises) said they were having trouble finding suitable franchisees. So if you have got the money, the skills and the commitment it may be worth investigating the idea further. But it’s not for everyone – particularly if you are trying to get away from a life working for someone else.
Further reading and resources
1. 
Buying a franchise – a brief guide to the over 50s from PRIME 2007 is based on a much longer research report we published in October 2005 which contained results from polling nearly a thousand people about the pros and cons of franchising. In less than 70 pages it explains exactly what franchising is and what’s involved in becoming a franchisee. It retains the earlier reports 10 detailed case studies of people who have gone ahead and done it. Also included are tips on dealing with franchisors, and a comprehensive jargon guide.
2. Whichfranchise.com There are many franchising web sites. What distinguishes this one is that it only carries franchisors that are accredited by the BFA. It also has a good resources section with background on the subject, plus a vast listing of franchises that can be sorted by sector and price.
3. Visit a franchise exhibition. The next major ones coming up are
The Scottish Franchise Exhibition, SECC, Glasgow 25 – 26 February 11
The British & International Franchise Exhibition,
Olympia, London 18 – 19 March 11
4. Government advice on avoiding illegal trading schemes and scams. This is mainly aimed at consumers. There’s also a more detailed Trading Schemes Guide aimed at people involved at a business level, downloadable as a PDF.
5.) The British Franchise Association – the main source of information about reputable franchises in the UK.
6.) MatchPoint Network
This commercial service has recently arrived in the UK from US, so we can’t vouch for how useful or reliable it is. But it is free to potential franchisees. It matches franchisees to franchisors – and is paid by the franchisors for finding them suitable candidates.
