ADVICE
FRANCHISING
VS LICENSING
Which proven business model would suit you
best?
Trevor Johnson reports
F
or a company looking
to expand or a budding
entrepreneur planning a
start-up, taking on a franchise
or negotiating a licence on an existing
product or service are currently two
of the most popular ways of building a
business quickly and efficiently.
Both have their success stories - and
their tales of woe - but which model
would be best for you? To get an idea,
here, in simple terms, are the key
differences you need to know:
A franchisee uses another
company’s successful business model
and brand name to operate what is
effectively an independent branch of
the company. The franchisor maintains
a degree of control and helps with
organisation, branding and marketing.Under the licensing model, a
company sells licences to use its
intellectual property, design, brand or
business programmes. These licences
are usually non-exclusive and the
licensor doesn’t control the licensee’s
business operation.IS FRANCHISING FOR YOU?
Franchising took off in the UK in
the late 1950s and has been growing
steadily ever since.
In the last four years, the UK
franchise industry has grown by over
10 per cent and now contributes over
£15 billion to the economy, with more
than 44,000 franchises employing over
600,000 people.
Research has found that running a
franchise is remarkably recession proofand regarded as a secure and reliable
way of improving a work-life balance
by taking on a proven business, rather
than going it alone with a more risky
alternative.
For instance, a recent British
Franchise Association survey has
shown that franchised businesses
had a 90 per cent success rate. On the
other hand, the bfa says, it’s estimated
that between half and two thirds of
independent start-ups close within
their first three years.
When you buy a franchise, you’re
buying a system. Under a franchise, the
owner retains control of the brand and
grants permissions to the franchisee to
use the business model and brand.
In exchange, the franchisee puts up
initial capital, helps promote the brand
and pays a licence fee and an ongoing
management fee based on a percentage
of annual turnover or mark-ups on
supplies.
The franchisor supports franchisees
by providing training, know-how,
marketing and other resources and
skills.
London marketing strategist
William Marsden says: “Lenders
are usually comfortable financing a
franchise because franchise chains
have a low risk of payment default. In
addition, some franchise systems will
provide in-house financing or leasing
options.
“There is traditionally a close link
and good working relationship between
franchisor and franchisee. A licensee
usually doesn’t get anything like the
training and support from the parent
company.”
“Franchising has never been in better
health than it is now,” the bfa says. “It’s
a flourishing industry boasting nearly