There is no denying the devastating impact that Covid-19 has had on the UK economy. We have entered into another recession and the rate of unemployment has increased by over 4.5% between June and August 2020 (according to the Office of National Statistics), despite the Government's job retention furlough scheme. As a result, experienced individuals who have been made redundant may be considering investing their redundancy payments into franchises. Here, Greenaway Scott considers the franchise business model and some of the associated benefits with investing into such businesses.
What is a franchise?
A franchise business is made of one party (the franchisor) granting a license to another party (the franchisee) to trade as their own business under the brand of the franchisor. As part of the franchisee investing into the franchise, the franchisor provides a package of necessary components for running the business, including training and equipment. The franchisor usually retains control over the quality of the goods/services being provided by the franchisee and provides ongoing assistance. In return, the franchisee makes payments periodically to the franchisor and the franchisor benefits from the brand expanding further.
What must a potential franchisee consider before investing?
Prior to investing into a franchise business, a potential franchisee should consider this non-exhaustive list of questions:
- How long is the franchise term? Is there a minimum term and does the term automatically renew if not terminated?
- What are the licences fees and deposit, and how soon should I expect to see a return on my investment?
- Who owns the intellectual property eg trademark logo?
- Is the potential franchisee responsible for finding a franchise location?
- Does the franchisor provide an operations manual?
- Are there other franchisees? If so, how successful have they been?
What are the benefits of becoming a franchisee?
Individuals are drawn to investing into franchise businesses for the following reasons:
1) Becoming self-employed. A major benefit of becoming a franchisee is becoming self-employed. Individuals who have recently been made redundant are seeking job security and control over their own employment - becoming a franchisee offers such control and security.
2) Ongoing support from franchisor. The stresses associated with setting up your own business are diminished when investing into a franchise business as the franchisor provides ongoing support relating to the operations and administration (including legal documents and marketing).
3) Flexible working. Often individuals have left large companies where the majority of their time has been dedicated to working for that company therefore, with a growing need for work-life-balance, investing into a franchise business allows a franchisee to organise their own working and family life.
4) Benefit from established brands. A huge benefit of becoming a franchisee is building upon the reputation of an existing brand. Customers tend to spend money with well-established brands that they have grown to trust, therefore a franchisee will not have to waste valuable time and money promoting and building up a reputation and instead can proceed with an established business model.
As the above suggests, there is no surprise that many individuals are investing redundancy payments into well-established businesses as they benefit from a pre-existing client base, whilst benefiting from the perks of setting up your own business. It will be interesting to witness the progression of this trend over the coming months as the impact Covid-19 continues.
The information contained in this article is for information purposes only and is not intended to constitute legal advice. If you require further information our commercial team would be more than happy to assist you. Please contact us at email@example.com or call us on 029 2009 5500 to speak to one of our team.