Banks will back franchises as a safer start up option

Given the current economic conditions it may surprise you to know that the amount of people investigating the idea of starting and actually starting a business has gone through the roof. This is often the case during times of recession. People who have been made redundant resolve to never work for a company again and use their transferrable skills to set up on their own.

This increase in start-ups can only be good for our economy. We need to drastically increase the levels of private sector activity in Northern Ireland if we are to try to cope with the impending government cuts.

Mirroring the growth in start up activity is the increasing interest in Franchising. Franchising a successful established business could offer entrepreneurs starting their own business a part of a potential market worth an estimated £400 million pounds in Northern Ireland.

Franchising is a fantastic opportunity for anyone considering starting their own business. It does have its own risks but unlike starting a business from scratch, franchise businesses benefit from the operational experience and market presence of the parent company. This can be a real help to would-be entrepreneurs starting a business for the first time, particularly in a recession where there is a higher risk of failure.

According to a recent NatWest business survey,

• The estimated annual turnover of the business format franchise sector is £11.8 billion.
• It is calculated that some 465,000 people are directly employed in the franchising sector.
• The proportion of franchisees reporting profitability in the survey was 89%.
• 1 in 3 franchisees advised they had a better 2009 than 2008 and particularly the second half of the year.
• Franchisors do not require their franchisees to have any specific skills or experience but are looking for a combination of skills such as self motivation, marketing, sales, business, drive and commitment.
• 78% of franchisors forecast an improvement in their business.

As we all know one of the barriers to starting up any business is access to finance. However, approaching the banks with a franchise concept is much more likely to secure that investment. According to Girvan Gault, Ulster Bank Area Manager for Commercial Corporate Markets, franchising can offer a less risky route to start-up businesses and is a model supported by the business lender:

“We are very positive towards lending to franchise businesses. In most cases a franchise offers a lower risk because the business can demonstrate a proven model that works.”

Franchising on the whole is a much safer and more successful model for starting a business. The Franchisee benefits from the greater visibility of the existing business, better management support and back-up from the franchisor. In general, they are better prepared about the financial details needed by lenders, due to the preparation that goes into any franchise agreement. All of these factors add an element of confidence to lenders.

There are also real opportunities for successful Northern Ireland businesses to grow using the franchise model.  Currently there are a number of high profile indigenous businesses, such as The Streat, who are successfully growing the business through this model.

If the business model is right, then growing your business through licensing or franchising is an effective way to ensure initial investment and recurring revenue into the business. Franchising your business can also allow for greater brand awareness, increased market share, greater geographical spread, greater exporting potential and rapid national and international growth. Of course, and maybe more importantly, it can also be a model for self financing expansion.

(ORTUS offers expert advice, mentoring and training, often available free, to support businesses and individuals interested in franchising. Their experienced team of business consultants can help overcome some of the more complex legal steps needed to purchase or develop a successful business franchise. For more information on buying a franchise, becoming a Franchisor or getting access to finance for this activity, contact Melanie on ortus on 02890311002).