brexitfranchise

Brexit and the opportunities for franchising

Almost two weeks have passed since the result of the EU referendum, and yet, no one can predict the true outcome for businesses in the UK.

A lot has been written on the impact that the decision will have on businesses in the UK. To many it still feels as though it’s ‘business as usual’.

However, the weakest Sterling value in a generation has lead to threats of businesses relocating, and the possibility of sweeping job cuts. If we’re honest, it all feels a bit gloomy.

Below, we take a look at a couple of reasons why Brexit might be a perfect opportunity to invest in franchising.

Opportunity One: Recession

With the economy barely recovering from the 2008 Global Financial Crisis (GFC), a very real outcome from the Brexit vote could be another recession. How then, you might think, is recession an opportunity for an investment like franchising?

The simple answer – franchising is a stable, tried and tested method.

A signifier of this stability is that banks have historically been keen to lend to potential franchise owners. Just this week Pip Wilkins, head of the British Franchise Association (BFA), has stated that the banks have said ‘there would be no change to lending within the franchising sector’ and that ‘each case will still be taken on its own merits’.

Further evidence of its stability is found by looking back to the GFC eight years ago. In the UK, Franchising was one of the only sectors to report substantial growth throughout the ensuing recession.

The leading cause for this owes to the fact that that franchising operates on a ‘turn key’ model, one where if you build the business exactly as prescribed, it has a high likelihood of being a success.

The nature of franchising means that a business has to have operated long enough to ensure that their model is successful. Only after several years of operating can they copy their model so that others can license it and profit from it in the same way. These models have been the driving force behind some of leading brands in the UK, and are easily recognisable when walking down any high street – their brand is their success.

In lean times, those who own a strong brand, with a profitable business, stand a good chance of owning a even larger chunk of the market when the recession turns to growth.business-cash-coin-concept-41301

Opportunity Two: Market volatility

If, like me, you don’t have millions stored offshore to buy British firms for a cut price, you might be left wondering what else is there that is safe to invest in.

Peter Brooks, of the Financial Times, writes that ‘when times are stressful and uncertain, investor focus tends to shift to excessive concern about what will occur in the short term, and away from calmer reflections on long-term value opportunities’. In these unsettled times, your investments should be driven by rationalising potential returns, rather than the immediate state of the markets.

Franchising, in this light, does very well. It has proven that it is a very successful mid-long term investment. The latest BFA/Natwest Franchising Survey shows that over 95% of franchises are reporting profit. On top of this building a franchise business builds real value equity that can be released by selling it on when times are more prosperous. With franchise licences lasting between five and twenty years, franchising can offer a way to build a serious investment portfolio over time.

It’s hard to find any high street bank offering interest rates of over 3%, an alternative could lie in being in charge of your own investment, building a business that will provide both immediate and future returns.

Conclusion

Whilst not all franchise systems are the same, the fact that the industry is known as being ‘recession proof’ is a good omen. The UK is undoubtedly in for a few years of financial unrest and it is still unclear as to how this will impact business in general. However, on the basis of what has happened during and after the 2008 recession, franchising as an industry seemingly has the mettle to weather any further storms.

What do you think? Is Brexit an opportunity or a threat to franchising? What are the likely outcomes for the industry? Have your say on our twitter or Facebook here.

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James Coombs

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