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Franchising – Powerhouse Behind the UK Economy

Amidst all of the Brexit angst, it seems that the UK government has lost sight of all that is good about the UK and the vibrant business environment it continues to provide for entrepreneurs.

The annual Legatum Prosperity Index produced by the prestigious Legatum Institute tracks the journey made by 149 countries worldwide towards or away from prosperity and its latest Index (2017) found that ‘the UK provides the best business environment in Western Europe’. Over 100 variables are compared each year and the report groups the findings into nine key sections: Economic Quality, Business Environment, Governance, Personal Freedom, Social Capital, Safety and Security, Education, Health, and the Natural Environment.  Whilst Norway retained its position at the top of the 2017 Index, the UK was placed 10th overall – above Germany and the United States.   The business environment section measures a country’s entrepreneurial environment, its business infrastructure, barriers to innovation and labour market flexibility.

And the UK’s entrepreneurial spirit has never been higher. The employment rate at 75.7% is at an all-time high with new self- employment jobs contributing around one-third to total employment growth. 

According to the Office for National Statistics Trends in Self Employment in the UK report published in February 2018, the rapid growth of self-employment has been a pronounced feature of the UK labour market in recent years. The number of self-employed increased from 3.3 million people (12.0% of the labour force) in 2001 to 4.8 million (15.1% of the labour force) in 2017. 

The heroes of this occupational revolution have not been government ministers, or the opposition. Nor has it been big business or the financiers that support them. The real heroes have been the self-employed ‘entrepreneurs’ taking risks and investing their scarce financial resources, to start businesses and create jobs.

But hidden deep in these figures and not reported in any Government analytics is the contribution that the franchising sector makes to this total.  Not everyone wanting to start their own business has the confidence to start-up from scratch – in fact statistics show a high early failure rate within the first two years. On the other hand, over 90% of franchise supported operations are still trading profitably over the same period.

The 2016 Franchise Direct Prospective Franchisee Survey of subscribers to its franchise recruitment website found that 50.4% of respondents wanted to be their own boss but didn’t want to come up with their own business idea. As for funding there is clearly a great deal of available resource out there with almost 70% of respondents saying they planned to finance their new franchise venture with savings from their pension pot.

In the current political climate, the government is constantly re-shuffling its top ministerial positions, making it almost impossible for any one politician to ‘own’ or champion specific issues. Esther McVey MP who held the post of Employment Minister in 2014 until she lost her seat in the 2015 election said that the Conservative Party should be encouraging those who have the ‘spark’ to create their own businesses and become ‘little engines’ of wealth creating in their own communities, liberating everyone’s potential.   She paved the way for senior level recognition of the contribution made to the economy by self-employed businesses but there is a long way to go before the real value of franchising is recognised. 

In its 2015 bfa/NatWest Survey the British Franchise Association reports that the contribution of franchising to the UK economy is now reckoned to be £15.1 billion, an increase of 46% over the past 10 years and up 10% since the last survey in 2013. In 2015 the number of franchisee owned business in the UK exceeded 44,000, with 621,000 people employed in franchising, of which almost half worked full-time. When it comes to turnover half of all franchised businesses claim an annual turnover of more than £25,000 and one third employ ten or more staff.

The environment for business in Britain may be world beating, but when it comes to independent, start up businesses the failure rates are stark. The Office for National Statistics reported that almost 56% of independent start-up businesses in the UK failed within five years. 

According to insolvency practitioners some common reasons for business failure include: The business was started and run for the wrong reasons, the principal did not have the required combination of entrepreneurial, managerial and technical competence, Inadequate working capital, weak financial skills, wrong location, lack of planning, poor marketing, and lack of strategic direction.

An opportunity to mitigate these high failure risk features of a new business start-up is available through the practice of supported-self-employment. This simple approach merges the personal vision and commitment of the self-employed business owner with the proven business model of an established brand to create a new, but far less risky business start-up. Significantly more robust, and with potential for longevity, major change with this business type is driven as much by life-stage decisions as by commercial failure, which remains at a low level of just 0.2%% according to the 2015 bfa NatWest survey 2015.  

In 2015 the overall contribution to the UK economy represented almost 1% of GDP – yet few outside the franchising industry understand the principles or benefits that this business model indisputably brings.

Kelly Tolhurst was appointed to the position of Parliamentary Under Secretary of State Parliamentary Under Secretary of State, Minister for Small Business, Consumers and Corporate Responsibility within the Department for Business Energy & Industrial Strategy in mid July 2018. It’s too early to predict how she plans to nurture and support enterprise in the UK, but those of us in the franchising industry welcome the opportunity to help her bring franchising out of the shadows and into the spotlight – claiming its rightful place as the power-house behind business growth in the UK

Nigel Toplis
Nigel Topis

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