Thinking of buying a franchise?
You’re considering buying a franchise. You’ve been told it’s a sensible option with lots of potential and support, and you’re investigating various sectors. But perhaps you’re not sure if now is the right time.
After all, we’re in a continuing era of political and economic uncertainty with Brexit looming on the horizon. And if you’re going to make a commitment, you need to be confident it will be a success.
Well, the good news is that when you look at the statistics, gathered over a number of years and decades, the performance of the franchise business model when compared to other small businesses and start-ups, is very impressive. The industry has seen year on year growth, despite the economic lows and challenges of the last decade.
So, why is the franchise system so strong and what makes now the right time? Well at MagiKats we think that it boils down to 3 key areas. And you may be surprised to learn that one of the key ingredients for a successful franchise is not the economic climate at all, but something much easier to predict.
Reason 1: A robust business model in uncertain times
You probably recall the financial crisis of 2007-10. It was a painful time for business, with many starts ups going under and with small businesses taking a battering. But not in the world of franchising.
Year on year franchise growth despite the credit crunch
In 2011, the British Franchise Association (BFA) published their NatWest BFA survey into franchising growth. The findings included that:
- During 2010 (when the economy was at a real low) franchising had increased its turnover by 5%.
- During the period 2006 to 2010 both turnover and the number of franchise systems had grown by 15% (as compared to the UK GDP which had only grown by 9.4%).
- By 2011, 87% of franchises were looking to expand within the next 12 months.
All a stark contrast when compared to what was happening to many independent small businesses at the time. In November 2008, for example, the Telegraph and Federation of Small Businesses were reporting up to 50 small businesses were closing a day as the credit crunch tightened its hold on lending.
And despite massive support from government initiatives, as the UK slowly emerged from the recession, 54% of small businesses were still reporting a downturn in trade in 2011.
In fact, in 2014, This Is Money reported that only 25% of 2008 start-ups were still operating two years later and only 86% of 2010 start-ups were still operating in 2011.
No surprise perhaps then that Brian Smart, general director of the BFA, said at the time, “Yet again franchising has demonstrated its inherent tenacity and stability, despite a tough climate last year.”
In fact, if anything, franchises seem to come into their own at times of economic downturn and that’s certainly been our experience at MagiKats.
NatWest BFA survey 2015 – continued franchising growth
In January 2016, there was another BFA survey. This time it reported that the franchise sector was reporting all-time highs in turnover and ownership, with 97% reporting profitability and over half reporting turnover of over £250,000.
What’s more, despite the uncertainty since the Brexit vote, less than 1% of franchisees closed their business in the 12 months preceding the report. And Brian Smart, was once again able to provide very positive feedback,
“Good franchising continues to deliver serious dividends for Britain’s economy, creating businesses, jobs and wealth for local communities across the country. Established trends of strong profitability and very low failure rates over the last 20 years highlight the benefit of self-employment through franchising, a path that more and more individuals are taking. The outstanding performance of the sector, in good economic times and bad, shows the power of the franchise model and its impact on the UK’s business landscape increases each year.”
More recently still, according to The Financial Times last year, “the number of franchise-owned businesses has grown by 10 per cent in the past two years to 44,200,” with these businesses employing a total of 621,000 people.
The private tuition sector
If the case for buying a franchise is strong, then the case for the private tuition sector is even stronger.
Private tuition is a huge marketplace in the UK, attracting 1.6 million customers in 2015. In September 2016, independent organisation The Sutton Trust published research into the growth of the private tuition sector. It revealed that in the decade 2005 to 2016 the number of UK students aged 11 to 16 yrs who had received private tuition had increased from 18% to 25% (and to over 40% in London).
This trend is likely to only increase as our education system continues to struggle to provide a universally acceptable standard of education, and as children throughout the UK continue to struggle without the support and help they need.
But what of our experience here at MagiKats?
Our experience matches the overall trend of both the franchise and the private tuition industries.
In fact, our experience has been, that in times of economic uncertainty and as job markets tighten, parents see an even greater need to secure the best possible future for their children via good, strong education.
Education becomes a priority and when other business models stumble, we have consistently seen growth. In the last recession, even the relatively newly established centres did not see a drop-in student numbers.
More recently, in the last 12 months (2017/18), MagiKats has seen significant growth for a franchise of our size, with 7 new franchises opening and student numbers growing by 15 % across our established centres. And in an independent survey conducted of our franchisees last summer, 70% of them were expecting their business to grow over the next 12 months.
“Our franchise, as a whole, is at the perfect stage for growth. The brand, MagiKats, continues to build its positive reputation. The goodwill cultivated by our dedicated, family-run management team is undoubtedly also part of that success.”
Explains MagiKats’ Director of Operations, Sarah Marsh.
Reason 2: Robust systems
The success of the franchise during uncertain times shouldn’t be a surprise. Anecdotal evidence about the success of independent “start-ups” in the first five years of trading normally estimates a failure rate of 80% to 90%.
The most commonly cited reasons for start-up failure are lack of experience and competence, lending and costs – all of which issues are either eradicated or reduced with the franchise system. The result is that by comparison, the percentage of successful franchises over a similar 5-year period is in the region of 90%!
All the experience you need in a comprehensive system
At MagiKats we developed our system ourselves over a 15-year period by running our own tuition centres. In fact, we still run three centres, where we trial any initiatives before we roll them out to our franchisees. A strong business model and system can (and did) take years to develop and has to include marketing, sales, technology, training, operations and support.
But that means, we’ve made all the mistakes that you might make as a new franchisee. We’ve identified issues, weak spots and strengths and we continue to do so, leaving our franchisees with a tried, tested and proven system in place.
Support from the banks
Banks and lenders recognise this strength and have dedicated funding for franchisees. It’s one of the many reasons the credit crunch didn’t strangle franchises in the same way as it did with other small businesses.
There are a number of organisations, such as The Franchise Alliance in partnership with the Transmit Start Up Loans Company who recognise franchises as particularly attractive to lend to, on the basis of their normal success rates. And the most recent BFA survey revealed that as a result, 4 out 5 franchisees said they felt they had a competitive advantage.
The real success secret
The other crucial ingredient for success is the personality of the franchisee and that of course doesn’t change whether it’s economic boom or bust time! You can make a very reasonable income quite quickly with one of our franchises. But that requires hard work, determination and the right attitude from the franchisee.
You don’t necessarily need any specific skills before you launch your franchise, but you will need to acquire them. These are transferable skills which will stand you in good stead in future years and you’ll learn them via the training and support you receive from your franchise owner. But again, that requires a willingness to learn and adapt, to be open minded about the franchise approach and prepared to take (and seek if necessary) advice when needed.
Can you answer these questions?
You also need to ask yourself some tough questions:
- Are you confident about interviewing potential mentors?
- Are you able to listen to parents and children with a whole spectrum of requirements?
- Do you have an interest in education news and the desire to keep up with it and deliver the best experience possible for your customers?
- Can you lead your team and organise the centre, so it looks and feels like an enjoyable place to come?
- Can you realistically run a business that requires regular time investment?
It’s crucial to spend time each week looking at student folders, mentor records and making sure you are delivering the very best you can. All this comes down to personality and at MagiKats we can’t emphasis this enough. It’s more important than global or national economics.
Reason 3: Low overheads
But of course, in the current times of the UK’s political uncertainty, you want to be sure you can earn a reasonable living. Setting up your own independent business can be costly (often more so than buying a franchise). Making a profit or worse still, just keeping a float, can be a long-term challenge. So how does that compare to the cost and potential of a franchise?
Costs of buying a franchise
Costs vary enormously as do ongoing financial commitments. Depending on the sector and precise business model, you could expect to pay anything from £5,000 to £50,000 with training provided in the US and / or a requirement to have permanent business premises.
At MagiKats the initial investment is £12,000 and you’ll probably require working capital of approximately £4 – 5,000. But you only need 15 to 20 students to break even and that should be achievable within 4 to 6 months.
How soon can you expect profit?
Three of our franchises that have opened recently, broke even within 3, 4 and 7 months respectively. Our centres with an average of 50 enrolments can earn over £21,000 per year before tax. Double that and the profit is over £50,000.
As of last summer, MagiKats’ UK franchisees had an average of 80 enrolments per franchise, an increase of 15% on 2016 figures. And our largest franchise has over 300 student enrolments!
Could there be a better time?
If you’re interested in teaching, education and making a contribution to your community, private tuition franchising could be right up your street.
“Obviously, with MagiKats being a family run business, with a great network of fellow franchisees to talk with, and not to mention the highest quality teaching resources, a lot of boxes are ticked.” He adds; “I feel like I can get back to the heart of teaching again, helping students with their goals and confidence.”
Gainsborough, – Jon Curry
With low start up costs, low risks and the potential to achieve a healthy turnover within a reasonable period (while learning valuable life skills), it makes a franchise a bit of a no brainer option.
Add in the franchise industry’s healthy resistance to economic change and the continuing growth of private tuition, the challenges faced by our national education system and our own impressive growth, the right time to buy a MagiKats franchise has to be now. Otherwise you may find they’ve all been snapped up.
If you’d like to know more, please contact us today.