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What is Franchising?

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What is Franchising?

In January we welcomed new Director Gurmeet Jakhu. Gurmeet has worked in franchising for some 17 years, including as company secretary at a leading franchisor company,  a niche franchise law firm and more recently at a top 100 law firm.

In this blog Gurmeet looks at the question – What is franchising?

Business format franchising is the granting of a licence by one entity (the franchisor) to another (the franchisee), which entitles the franchisee to own and operate their own business under the brand, systems and proven business model of the franchisor.   A franchisee pays an initial fee and ongoing royalties to a franchisor; in return, the franchisee gains the use of a trademark, ongoing support from the franchisor, and the right to use the franchisor’s system of doing business and sell its products or services.

It is a cost effective way for a franchisor to expand its territorial footprint rapidly.  Instead of developing company-owned outlets which requires capital, the business expands by granting a franchise to others who sell their product(s) or service(s).  The investment will come from the individual franchisee.

Each franchise business is owned and operated by the franchisee.  The franchisee will acquire the right to operate a tried and tested business model and should ‘hit the floor running’. This reduces the risk of business failure.

However, the franchisor will retain control over the way in which the products and/or services are marketed and sold.  The franchisor will control the method, standards and the way in which the business is operated, principally through a legal contract, the franchise agreement and the operating manual.

Statistics

Franchising has been in robust health for many years, despite the U.K.’s economic downturn, but the bfa/Natwest 2015 Survey reveals how it continues to go from strength to strength. Franchising contributed £15.1bn to the UK economy last year, an increase of 46% over the past ten years and up more than 10% since the last survey was published in 2013. According to the research, the sector now employs 621,000 people, of which 321,000 are in full-time employment. This also represents an increase of over 10% since 2013 and 70% over the last ten years. Reflecting an upward trend in employment, the survey revealed that a third of franchise-owned businesses now employ ten or more staff.

Further findings show that the number of franchise-owned businesses increased by 14% in the space of two years, hitting 44,200 in 2015, with over half reporting an annual turnover of more than £250,000. More impressive still, a record 97% of franchise-owned outlets reported profitability last year, with 56% saying they are ‘quite’ or ‘very’ profitable. This coincides with a low rate of commercial failure: just 1% of franchise businesses had to close their doors for this reason in 2015.

These figures demonstrate the continued success of franchising.

If you have any questions on this area or would like to speak to Gurmeet he can be contacted on 0121 296 3840 or by e-mail gjakhu@egl-law.com 

There are more details of Gurmeet’s experience on his profile page which you can see by clicking here

 

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