Q&A - What is franchising?

A business idea for a start-up doesn’t have to be original. Many new businesses are formed with the intention of offering an existing business idea. The use of franchises is a great example of that.

The basic idea for a franchise is this.

A franchisor grants a licence (the “franchise”) to another business (the “franchisee”) to allow it to trade using the brand or business format.

That might sound a bit complicated! The trick is to remember that the franchisor is in charge - the franchisor is the original owner of the business idea.

Franchises are a significant part of business life in the UK:

- Franchises generated annual sales of £12.4 billion in the UK in 2007
- There are over 800 different franchised business formats in the UK and that number is rising by around 5% each year
- The average sales turnover per franchise outlet is £360,000
- 90% of franchises are reported to be profitable
- A franchise has average borrowings of £70,000, suggesting that banks are happier to make loans to franchise businesses than other start-ups
- The typical franchisee is aged 47. 66% are men and 86% of franchisees are married!
- Franchises are particularly popular in the service (tertiary) sector.

Examples of businesses that use franchising to expand their operation include:
Subway
McDonalds
Starbucks
Pizza Hut
Thorntons
Molly Maid
Prontaprint

You might have noticed from the list above that nearly all those businesses provide services rather than produce goods. Franchising is particularly suitable for service businesses.