Mythbusters: Franchising Isn't a Legitimate Business Opportunity

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mythbusting franchise

In this article series, we look at some of the most common myths circulating in the franchising world. First up: you may have heard the myth that franchising isnt a legitimate business opportunity. Were here to tell you why this simply isnt true, where the myth has come from and why you should still consider starting a franchise.

Many people are sceptical about franchises, and one of the biggest reasons behind this suspicion is the belief that theyre not legitimate business opportunities. In this article, we delve deeper into this myth and show you why its unfounded and why starting a franchise can lead to great things.

Franchises come under fire and are compared to pyramid schemes and multi-level marketing (MLM) systems, because, at their core, theyre also organisations that recruit investors to sell their products. In reality, franchising is reliant on far more than just recruitment, and it can be a fantastic way to start a profitable business with the support of an industry expert.

The franchise model

Lets take a quick look at the franchise model before we go any further. Under the system, entrepreneurs buy the rights to use a franchises brand name and trademarks in their own business. They pay a monthly royalty fee to the franchisor or founder of the company, and benefit from the brands national or international reputation and existing customer base.

Franchisees also get access to a dedicated training programme and ongoing support to help them build a successful business. In many cases, franchisees can open additional franchise units in the future if they want to, increasing their reach and profitability.

In comparison, pyramid schemes focus far more on recruitment, as this is how they make their money. New employees pay a fee to join the scheme, and then hire their own staff members, which pay a fee that filters back up the pyramid. The founder at the top of the triangle makes money as more and more people come on board.

Pyramid schemes are completely different from franchises, but theyre often thought of as similar business structures as they both attract investors and charge a joining fee.

The British Franchising Association

The British Franchising Association (BFA) was born out of a need to differentiate honest, ethical organisations from illegal pyramid schemes. This regulatory body became the franchise sectors guiding force, highlighting reputable businesses and refusing to accredit less worthy ones.

It was in 1977 that the BFA was formed. But, to this day, savvy entrepreneurs use its website and franchise events as a way to make sure they invest in credible businesses. Find its list of approved franchises here.

Franchising drives positive results

As the franchise sectors governing body, the BFA has carried out many investigations to find out just how successful the industry is. Here are just a few of its most interesting findings from 2018:

  • It generated £17.2 billion (up by 14 percent from 2015)
  • It employs 710,000 people (up by 14 percent from 2015)
  • It comprises 48,600 units in the UK (up by 10 percent from 2015)
  • 37 percent of new franchisees are women (up by 20 percent from 2015)
  • 97 percent of franchise units are profitable
  • Six in 10 franchise units turn over more than £250,000 per year
  • Just 4.6 percent of franchise units experience changes in ownership

As you can see, not only does the franchise sector hold huge potential for hard-working investors, but its also on the up, having grown in size over the years. To find out more, see the BFAs research pages here and here.

Franchise success stories

If youre still doubtful, there are plenty of franchise success stories from savvy entrepreneurs just like you!

Heather Salvador Stagecoach

Heather Salvador knew from a young age that she wanted a career in the world of performance. So, when the opportunity arose to become a Stagecoach franchisee, she leapt at the chance. Having been a singing teacher for many years, she and her husband Cris decided to take the plunge and become franchisees in the performing arts sector.

It felt like a natural progression for myself and Cris to invest in our own territory. Hes also a classically trained singer and, although he hadnt worked for Stagecoach before, he could see how much I enjoyed working with them. I fully believed what you were buying with a franchise was completely worth it. Stagecoach manage everything, from child protection and lesson planning to marketing and PR support. It meant I could concentrate on the development of the children and leave the rest to the experts.

The childrens franchise helped the pair to research their preferred territory before they signed up and, in 2005, they became Stagecoach franchisees (just four weeks after Heather gave birth). Now, they run Stagecoach classes in Leeds, Chesterfield, Barnsley, Halifax and Pontefract, and attend the franchises extra training sessions regularly to make sure theyre maximising their profit potential.

Stewart Green Recognition Express

Stewart Green began his franchising journey back in 2003, when he made the decision to purchase a Kall Kwik franchise. He explained: I always knew that I didnt want to reach retirement age and think to myself, I really wish Id set up my own business.

Over the years, Stewart grew his business and expanded it to offer more products, including web design and marketing support. Things were going well for him when, five years ago, he received another offer from Kall Kwiks parent company, The Bardon Group. It wanted to know if he would be interested in bringing another one of its brands, business franchise Recognition Express, to the people of Suffolk.

Now, Stewart and his team of 11 employees run both businesses from one premises close to the centre of Bury St Edmonds. Although the prospect of running two businesses at once might sound daunting, Stewart said that its only helped to improve what he can offer customers. Thanks to his determination and a lot of hard work he has managed to build two profitable franchise units, all while helping other businesses get recognition.

Theres no reason why you cant follow in Heather and Stewarts footsteps by starting your own franchise!

Be aware of franchise scams

Like any industry, there are scams out there. When starting a franchise, you should make sure youre aware of them and dont act naively.

Of course, franchise scams are rare, and for every investor that falls for a con, there are far more that start lucrative and rewarding businesses and see long-term success. So, dont be put off franchising just because there are people out there who want to con entrepreneurs. But how can you avoid them?

The bottom line is: do your due diligence. If youve thoroughly researched the business youre interested in, youll know whether youre investing in a legitimate opportunity. Its understandable that youll be exited and want to get going quickly, but youll put yourself in the best position by learning everything you can about the franchise youre joining.

Choose an ethical franchise The BFA has a list of approved franchises to help investors make a sensible choice.

Take the time to attend a Discovery Day and meet your future franchisor in person. Ask them all the questions youve prepared and make sure theyre everything they claim to be. If theyre to get the most from their business, theyll want to make sure youre right for the company too. So, if theyre trying to rush the process or pressure you into signing on the dotted line, consider taking a step back.

To find out more about how to tell if a franchise opportunity is too good to be true, read our article here.

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