Franchising could provide a route back to work in the face of high unemployment
Joel Caws - Technical Director, Select Your Franchise
A few days ago, a news article by the BBC reported that UK unemployment rose to 2.64 million in the quarter to October 2011, its highest level in 17 years. It’s clear that the effects of the recession are still with us for some time yet, with the danger of a double dip recession also snapping at the heels of the UK economy if this and next years quarter see a retraction in growth.
Despite the doom and gloom, many of those who have found themselves unemployed have taken control of their own futures by seeking to start up new franchise businesses. Franchises can give you the benefit of establishing your own business but with the added help of founding it on a proven, franchised business model along with the support and training of the franchisor.
If you are one of those affected by the recent rise in unemployment and facing the difficulties and frustrations of applying for new job vacancies with increasingly greater competition, starting up a franchise business could be your ticket to get you back on track.
If you have come out of a previous position with a redundancy package, then it could be that you decide to invest some of this capital into starting up a new franchise business venture. Though some franchises do require fairly substantial upfront franchise fees, there are others which are also affordable to those with lesser available capital.
Whatever your financial situation or preference, you will almost certainly be able to find a franchise business to suit your needs. There are hundreds of different franchises available in the UK in almost every conceivable industry sector from technology to manual labour, from business consultancy to children’s parties, from office based to home based, from retail store to mobile van sales, the list goes on.
If you want to take control of your future and think a franchise business might be an option for you, you could start by using a franchise matching service which is a quick way to find franchise opportunities that are available in your area and that match your preferences.
Positive growth continues in the franchise sector
Cathryn Hayes - HSBC Head of Franchising
As the National Franchise Exhibition at the NEC in Birmingham is just around the corner, we explore why our enthusiasm for the UK franchising industry is continuing to bloom.
Franchising contributes £12.4 billion to the UK economy and provides jobs for an estimated half a million people working in the franchise industry.
Four out of five franchisees feel that being part of a franchise has given them a competitive advantage in the last year, when compared with similar businesses that are not franchised. The recent bfa HSBC Franchisor of the Year Awards revealed just how much franchisors are doing to support their franchisees. All finalists displayed a wealth of expertise in what excellence means in practice.
HSBC has supported franchising for over 25 years, and our approach to providing finance has remained consistent. In 2010 we doubled our lending for franchisees compared to 2009, and we are looking to further build on this record performance.
The key thing here is risk – good ethical franchising is less risky than conventional business start ups and that’s why banks will look favourably at applications from franchisees. But are they a safer option?
Franchising covers a wide spectrum of industries and even though some have performed better than others during the downturn, the risk is diversified for the sector as a whole. The risk of failure is lessened further by the support and tried-and-tested model provided by successful franchisors. It is in your best interest that the franchisee’s business remains in good shape and you continue to receive income in the form of ongoing management service fees.
Funding is more likely to be available to quality applicants who can demonstrate they have a good understanding of their chosen franchise model, the skills needed to realise the opportunity and a firm grasp of the financials of the business.
As we begin to emerge from the recession, now is the time to start recruiting new franchisees, ready to expand your business during the long-awaited upturn. Keep your bank updated with your most recently audited accounts, any initiatives you have put in place to assist your franchisees and details about how your business is performing. Your bank will work with you to ensure your franchisees obtain the right funding package, enabling their business and yours to thrive.
Posting from the monthly HSBC Connections newsletter. For more information or to get on the mailing list for the newsletter please email franchiseunit@hsbc.com
Franchising in a difficult economy
Cathryn Hayes - HSBC Head of Franchising
The UK economy continues to see signs of pressure with the low retail sales, soaring fuel costs and utility bills. Now is a good time for businesses to be innovative and think about how to improve efficiency and profitability. This is where the strength of franchising comes into its own – you can help keep your franchisees focused, sharing your knowledge and experience.
Customers may delay payment – do your franchisees have the financial stability to survive if this happens? Managing overheads and identifying savings seems obvious, but is it being done? How much are franchisees taking out of the business – do they need to consider their spending levels? Are they managing their banking facilities well? Going overdrawn without agreement or exceeding limits can be costly.
Looking at overheads seems obvious, but many small businesses just don’t do this, or don’t do it soon enough. You are in a position to benchmark your franchisees, and help them to consider how their business costs compare with their peer group.
If your business deals with stock holdings, help your franchisees to achieve greater efficiency. Are your own systems robust and effective? Order less stock, but more often. This may require more management by you or your staff, but means you don’t have to tie up as much cash in stock. Obtain better credit terms from suppliers. If you are unable to do this – if for example you have no track record with a particular supplier – ask for better discounts in return for prompt payment.
If equipment purchase is necessary, consider leasing instead of outright purchase. This means you can spread the repayments over a period of time, and may be able to benefit from tax allowances. Many leasing schemes also include extra benefits such as maintenance insurance, which can help avoid unexpected costs later on.
Proactively manage your customer database and re-establish contact with dormant accounts or old leads. Send out information about the business and its goods and services, and highlight any unique selling propositions (USPs) your business has.
Consider how IT is used in the business – can it be used to further cut costs and improve efficiency? What are your best franchisees doing that the others can learn from?
It is always vital to keep a close check on how much money the business is owed and whether franchisees are keeping on top of invoicing and credit control. Is the franchisee very dependent on a small number of large customers? This could lead to major problems if one of these fails.
Are your franchisees working well with their bank? These are some of the problem areas which can lead to a breakdown in the relationship:
- not supplying agreed information on time
- failing to make loan repayments
- repeatedly exceeding overdraft limits
- unexpected or persistent trading at a loss
- not using facilities for the agreed purpose
Look at your own requirements as a franchisor too, and work with your bank. We deal with a wide range of franchisors, from small businesses setting out on the franchise route to major corporates. Regardless of size, it is important to:
- Have a clear view of where the business is going. What are your aims for expansion, and how much are you going to need to spend to achieve that?
- Keep good financial records and forecasts. If you do, you can apply for new finance before you need to use it. Banks will look more favourably on such requests as it shows you are in control and can plan.
- Understand how financial ratios work. They are good indicators of business health and are what banks use to assess your financial health.
- Review your marketing strategy, sales performance and the performance of sales staff on a regular basis. Keep an eye on the competition to ensure someone else doesn’t steal your customers.
- Attract the best franchisees, inspire them to achieve success and move on the underperforming ones.
- Have the right management and support team in place.
The overall message is, whatever the state of the economy, get the basics right to encourage and foster success.
Posting from the monthly HSBC Connections newsletter. For more information or to get on the mailing list for the newsletter please email franchiseunit@hsbc.com
