International franchising advice from HSBC
Cathryn Hayes - HSBC Head of Franchising
A diverse range of sectors lend themselves to successful international franchising. A common example is retail, particularly the fast-food sub-sector.
In recent years there’s been a growth in service industry franchises such as in the cleaning and maintenance sectors, as well as management consultancy, and there’s been a big increase in home care. Numerous successful home care franchises are being operated all over the world, including in the UK.
Well-known British franchises
Several established UK brands – including Marks & Spencer – have sold international franchises for years. Providing jobs for more than 75,000 people worldwide, there are currently more than 300 M&S stores in 40 territories, many of which are successful franchises. Other well-known examples include Costa Coffee, Clarks and Toni & Guy.
Some UK businesses sell franchises in the UK and beyond, while some only sell overseas. To increase their chances of success, some UK businesses set up overseas subsidiaries or joint ventures first to establish their brand and then, armed with greater local market awareness, they begin selling franchises. Importantly, the business model must translate and provide returns for both parties.
Franchise agreements
Buying a ‘master franchise’ can give rights to an entire country. Other options include a regional/area franchise, down to a single-unit agreement. Bigger geographical exclusivity comes at a price.
The franchisee usually pays the franchisor an initial sum upfront. Then they pay a monthly fee – normally a percentage of turnover. The franchisor provides training and ongoing support. Some agreements simply involve the franchisee buying products from the franchisor, rather than paying a monthly fee.
Welcome cash injection
International franchising can provide brand owners with a welcome cash injection and a regular, predictable income stream, without the risks, investment and resource commitment of establishing their own presence overseas. Franchisees are no less motivated to run the business successfully, and it is firmly in their interest to do so.
As well as enhancing a brand – providing its reputation stays intact – franchising can be a way to spread development costs across a wider set of markets. The overseas franchise must be properly resourced and operated if standards are to be maintained. Potential partners must also be carefully selected and should understand and respect the brand.
UK business models may need some tweaking, if they are to work in overseas markets. There are questions of language and culture that need to be considered, too. The cost structure in another country could be very different, which could have implications for your franchise.
Key recommendations for UK businesses considering becoming international franchises
Early on, it’s a good idea to speak to a specialist international franchise consultant affiliated to the British Franchise Association (bfa). You should also make sure your intellectual property is safeguarded, and seek tailored legal and tax advice. Agreements should be drawn up by a qualified professional – preferably an experienced franchise lawyer affiliated to the bfa.
Someone within the organisation needs to take charge of managing and developing franchising activity. This must also be properly resourced and can mean significant people, time and money.
Research is crucial, too. You must consider which franchising model is best for your business and identify territories in which your franchise is most likely to succeed – it might not work in some places. Carry out thorough due diligence on all prospective partners. Pilot your franchise before making it generally available. This enables you to iron out any minor problems before committing major resources.
- Visit the website of the bfa. See the organisation’s international page for links to international franchise organisations.
- Visit the International Franchising Association website.
- For information about overseas markets, visit the UK Trade & Investment website.
- Find out about how HSBC can support your efforts to become an international franchisor. You can email us or call 0800 234 6224.
Seeking out Franchise Advice
Joel Caws - Technical Director, Select Your Franchise
Finding the right franchise advice is critical when looking at starting up a franchise business. Very few people who are looking to start a franchise have enough franchise knowledge in order to make all the right deicisions. For this reason we’ve compiled a few ideas of where to go to find the right franchise advice that could save you some pain along the road:-
Friends
No advice is often more trustworthy than that which you can glean from your friends. When considering starting a franchise business, ask around or even pop out a message on your favourite social network such as Facebook. See if anyone else in your circle of friends has ever started, or is running, a franchise business and get their valued insight and advice on their experiences in setting up the business and how it performs for them.
Franchise Consultants
Franchise consultants are experts that have an extensive knowledge of franchising and many connections within the franchise community. They will often have a good knowledge of different franchise systems and can help match you to one that suits you.
Franchise Legal Experts
Franchise legal experts are usually lawyers who work and deal specifically within the franchise industry. They have a good understanding of the law relating to franchise agreements and can offer advice and help when it comes to the legal implications of running a franchise business. For example, what accountability you have to the franchisor and what are their obligations to you the franchisee, could be explained in plain terms to you by a franchise legal expert so you understand fully what you are taking on.
Franchise Associations
Franchise Associations, help to promote franchising in each respective country. In the UK, this is the British Franchise Association, who can provide help to prospective franchisees and point you in the direction of resources and/or other Association approved companies to help you in setting up your franchise. They also provide a membership scheme for franchisors for which certain criteria have to be met in order to become a member. Choosing an Association member, may help to give more confidence in finding the right franchise business for you.
The Banks
Many of the high street banks have dedicated franchise sections, whos job it is to arrange finance for those wanting to set up a recognised franchise business. The bank will be able to advise you on what finance might be available for setting up your franchise. In addition, they may already have some history of financing for a specific franchisor which may help with your application.
Tags: franchise advice, franchise business, franchise information, franchise opportunities, joel caws
Franchise View: Unemployment hits 17 year high
Carl Reader, Dennis & Turnbull Ltd
Unemployment hit a 17 year high in the three months to August, the latest statistics have shown.
The Office for National Statistics (ONS) released the figures, which show the unemployment rate was at 8.1 per cent, making a total of 2.57 million unemployed people.
The quarterly increase of 114,000 people has been described as ‘horrific’ by Dr John Philpott, chief economic adviser at the Chartered Institute of Personell and Development (CIPD). He said:
“These labour market figures are truly horrific, with the economy shedding almost 15,000 jobs each week between June and August. The quarterly rise in unemployment is reminiscent of an economy in recession rather than any kind of recovery and confirms that the private sector just isn’t creating enough jobs at present to offset public sector job cuts.
“With 5.6 unemployed people for every job vacancy the labour market is back to where it was in the depths of recession in 2009 and the underlying problem is getting even worse given that 1 in 3 unemployed people have now been without work for over a year.”
The number of 16 to 24 year olds out of work is now at its highest level since 1992, demonstrating how important it is for the Government to do more to support businesses to grow and employ more staff.
Commenting, Katja Hall, CBI Chief Policy Director, said:
“Today’s unemployment numbers make grim reading, especially for our young people. The continuing rise in youth unemployment is a grave concern for us all.
“Businesses are still creating jobs and only continuing private sector growth can help us out of the current tumult. With jobs falling in the public sector, it’s vital the Government does everything it can to support businesses to grow and create jobs, and help young people get into work.”
With such a stark outlook, starting a franchise business could be a way out for many stuck in the unemployment trap. A franchise is basically a way to start up your own business using a proven business model with the support and backing of the franchisor.
Carl Reader is the head of franchising at franchise accountants Dennis & Turnbull, a leading firm of accountants in the franchise industry.
The above information is provided as general advice and no liability is accepted by the author, Dennis & Turnbull or Select Your Franchise in respect of individuals or businesses acting on the above. Independent advice should be sought in all circumstances.
