You might consider investing to be your business, but have you considered making a business your next investment?
Franchises offer an additional way for serial investors to diversify their portfolios, while tapping into an economy that generated over £17 billion in the UK in 2018, according to figures from the British Franchising Association and NatWest.
With this number growing year by year, there are clear returns on investment to be made by choosing to build your portfolio with a franchise.
And unlike many other investments, a franchise gives you the opportunity to see something grow and flourish thanks to your investment, all while yielding revenues for the time and money you put into it.
Why invest in a franchise?
Franchises offer a range of benefits that make them at least worthy of consideration as part of a diverse investment portfolio:
- Choice: Franchise opportunities exist in a huge range of different markets in the UK and abroad, giving you access to sectors where you think significant growth can be achieved.
- Confidence: Many of the most lucrative franchise opportunities are built on proven principles by global brands that have already shown success, making a branded franchise a safer bet.
- Convenience: Again, choose a branded franchise and you have instant customer recognition. Nobody asks who owns the franchise at their local burger joint – they just look at the brand name over the door – and this is true across many other sectors too.
Just remember that you might pay a premium for a global megabrand franchise, compared to a lesser known name that is just starting to build an empire.
When weighing up the yield, be sure to factor this into your expected returns – some investors will prefer confidence at a cost of slightly lower returns, whereas others will be prepared to embrace the risk for greater possible rewards.
Better chance of success?
Investing in start-up companies is risky. A high percentage will either fail, or take several years or longer to start turning any profit at all, let alone a substantial return on investment.
Franchises are different. They are designed to put into effect a business model that has already worked elsewhere, with minimal setup costs.
The BFA and NatWest survey found that 93% of all UK franchises in 2018 reported profitability, and one in seven – 14% of those surveyed – said they were “highly profitable”.
According to the survey, franchise investments around the £20,000 level offer some of the highest profitability, potentially making this a good level for new investors to go in at.
Free advertising
Unless you’re the one getting paid, there’s no better price than free when it comes to investment.
While of course a franchise agreement will have factored in marketing costs at some level, you still get what essentially amounts to free advertising from the parent brand.
If you are able to buy a franchise from a brand that invests heavily in advertising and marketing, that means you should need to do little to nothing yourself in order to build brand recognition and awareness.
Again, this is all part of the convenience of investing in franchises vs. start-ups that operate under their own brand, with the latter starting from nothing in terms of public awareness and customer base.
Support services
One reason why many investors choose not to go into business for themselves is the amount of extra admin work involved, including areas like legal, recruitment, training, equipment, maintenance and so on.
A good franchise agreement should have many, if not all of these areas covered, so that you can rely on the parent company’s proven practices when it comes to hiring new staff, buying the right equipment, training your team etc.
This again helps to put in place efficient, effective processes for all of these things, but crucially it also cuts the costs and admin time involved, leaving you free to focus on the core of the franchise and getting as much value from it as you can.
Moving on from franchising
Finally, franchises don’t just produce an ongoing revenue stream – you can also raise funds by selling a franchise in its entirety, in the same way that you would liquidate any other asset.
Here again you benefit from the brand name and recognition, which can help you to find a buyer more quickly, and at a higher price.
Often a brand name franchise will prove to be a considerable store of value for any investor, especially if you are able to demonstrate that it has been trading successfully during the time that you have owned it.
Be aware that the original franchise agreement you signed may have restrictions when it comes to selling or exiting a franchise arrangement, so check these at the start before you put your signature on that paper.
Assuming you are not hamstrung by the contract terms, you should be able to sell most successful franchises for a good price and put the lessons you have learned into practice by investing elsewhere, acquiring a new franchise to build, or even going into business yourself.
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Disclaimer: The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
