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By miguel-ingles
- In Uncategorized
The franchise business model is prevailing over traditional shops but, is it profitable to invest in franchises in the UK? For this reason, in this article I will analyse the characteristics, advantages and disadvantages of setting up subsidiaries in this country.
What is a Franchise? Key Points to Invest in Franchises in the UK
The franchise method is a form of distributing products and services. On one hand, a franchisor designs a business system and a brand image. The latter includes a commercial name, the logo of the company or its slogan, among other things. In addition, they will also create a product line every branch will offer. On the other hand, a franchised will pay some fees for the rights to operate in a certain geographical zone using such business system and brand image.
The franchisor may offer funding plans and loans to the franchised. Doing so, they encourage and facilitate more entrepreneurs to establish more subsidiaries of their enterprise. Moreover, the franchisor guarantees collaboration to the franchised in areas such as training of the employees or supply chain support. These clauses may vary between franchises and will be captures in the contract among both parts.
Legal Framework
In the UK, there are no specific laws that regulate the agreements nor the activities the franchises make. However, the legal framework of the country protects franchisors and franchised, while ensuring that fair practices are performed.
- British Franchise Association. It sets an ethical code that include several good practices. Franchises do not have to affiliate with this association, but, if they choose to do so, they must comply with this ethical code.
- Competition Regulations. Any agreement and activities that go against free competence in the UK are forbidden. They focus specially on prices and on the presence of rival companies within a certain region.
- Labour Legislation Franchises. Companies must comply with the UK’s labour laws. They regulate the working hours, the holiday periods or the professional conditions, among other things.
Key Sectors
Entrepreneurs have created franchises in many different sectors. The most renowned one in the UK is fast food, with companies like McDonald’s, KFC or Domino’s Pizza among the most popular ones. In addition, they are at the forefront of matters such as business management and tech innovation.
Other relevant sectors are the clothing industry, with corporations like Primark, educative services providers (an example in this country would be Kumon) or mobile phone services (such as Vodafone).
Advantages and Disadvantages of Investing in Franchises in the UK
Associating with a franchise come with several benefits. For example, access to funding will be easier and quicker than if you formed a company from scratch. Likewise, the parent company can give you important knowledge and tactics to improve the performance of the business. At last, due to benefiting from an already established business brand, the development process of the branch enterprise will be quicker, and the success probabilities are higher than when setting up a new corporation.
On the other hand, being part of a franchise will limit the area where a company can operate to a very specific region. Moreover, it must use the business brand of the parent company, so the subsidiary will not be able to create its own identity. These things hinder the expansion and development ability of the branch business. Additionally, it is dependant from the franchisor. They will dictate the decisions for all the franchised enterprises, independently of the specific characteristics of each one.
In Conclusion: Is it Profitable to Invest in Franchises in the UK?
For a franchisor, it is definitely profitable to invest in franchises. In the short term, it is possible that their income is inferior to if they directly set up the branch companies. Nonetheless, due to this business model, the brand expansion process will be quicker.
For a franchised, it depends on the specific case. It can be a good option if you have low investment initial funds or if you are looking to set up a safe business from a financial point of view. That being said, its development ability is almost non-existent.
In ukstartcompany, you will find information about how to establish, register and operate companies with different legal structures and business activities in the UK.