What are the pros and cons of franchising your new recruitment business?
Having launched over 300 recruitment businesses since 2013, here at SSG we like to think we know a thing or two about getting entrepreneurial recruiters from the idea of running their own recruitment business, to the reality.
But, we know we’re not the right option for everyone – in fact, so keen are SSG to encourage you to consider other possibilities, we devote a whole page on our website to it. In this post, I want to cover one of those options, franchising.
What is a franchise?
In simple terms, a franchisor provides a franchisee with its trading name and brand, products and/or services and an entire system for operating the business. The franchisee will also usually receive help with selecting a site and developing the business, operating manuals, training, brand standards, quality control, a marketing strategy and business advisory support from the franchisor.
Essentially it’s a complete package, whereby the franchisee can get up and running in a business very quickly, using an existing brand and structure. Of course, that ease and simplicity comes at a price – there is usually a hefty up front cost and you’ll pay the franchisor a share of your profits.
There are plenty of options for recruitment franchises, many of them backed by big name brands, who are instantly recognisable in the market. And it’s this brand recognition that is appealing to many franchisees, who believe that they can’t compete in a smaller business where brand awareness can take time to grow. That’s provided the franchise has a good reputation of course!
Franchises have developed a tried and tested method for success, reducing the chances of failure in the new business (provided you follow their model and instructions of course). Because of that, you should be able to get up and running much quicker than if you’re starting on your own plus you’ll begin to see profitability at an early stage.
A franchisor wants their franchisees to be successful – that way, they get more profit and attract more franchisees to their model. It’s a win win. Which means that they will commit to providing ongoing support for you in your new business, ranging from a full training provision, an Account Manager on hand to give support and advice, a defined territory to minimise competition, 24-hour helplines and so on.
The availability of finance options
Most banks and lenders look more favourably on a franchisee for lending than they do on a business owner who is starting on their own. Why? Well, lenders perceive franchisees as a lower risk as they believe the backing of a large franchise will virtually assure success.
And this is a biggie! You will usually be required to pay a lump sum at the beginning of the agreement, which essentially allows you to start using the franchisors brand name. Not only that, but some franchisors will insist upon a minimum amount of working capital before they will allow you access to their system.
On an ongoing basis, the franchisor will take a regular slice of your earnings (usually calculated on turnover, not on profit) plus royalty fees and any other fees that are stipulated in the agreement.
And there’s more…..you’ll still have to cover all the usual business overheads, plus an additional payment if you want to extend your agreement with the franchisor after the initial term.
In contrast, you can start your own business on a shoe string, controlling costs as you wish.
Another biggie, especially if you are particularly entrepreneurial, innovative or creative. Whilst the structure of a franchise can be comforting, many do find it restrictive – after all, you do things their way, not yours!
With a defined operating procedure, you may feel frustrated, especially if you can see ways in which to improve your franchise, which are not allowed by the franchisor. And the penalties for stepping outside of the rule book can be severe, with some franchisors stipulating that your agreement can be revoked should you decide to not conform.
This lack of autonomy can hinder innovation and become stifling if you’re the type who wants to develop your business.
In a similar way to not having autonomy within your own franchise, you also have a lack of overall control on the direction of the franchisor and the actions of other franchisees. The benefit of being recognised under one brand, can also be a downfall if another franchisee does something that will harm the reputation of everyone under that umbrella. Plus, if the franchisor makes poor business decisions and begins to suffer, this will have a direct effect on your business.
With your own business, the culture is firmly set by you – no one else can decide the direction in which your business will move, the type of work you will do, the clients you will work with, the employees you will take on, the brand identity and so on. You have complete control to develop the culture that you want to work in.
Plus, you don’t have to get along with anyone but yourself (for a short while at least!) Whereas with a franchise you must have a beneficial reciprocal relationship with your franchisor to ensure success.
For recruiters, a middle ground?
There are pros and cons to franchising and, for some, it offers an ideal opportunity. But for entrepreneurial recruiters, there is a middle ground. Not a franchise and no upfront costs, but still providing the support and expertise that a franchise model provides, with the autonomy of your own business.
At SSG we provide sound advice based on extensive experience of providing financial backing, recruitment support, legal and compliance, back office services, branding, marketing communications and business mentoring. Since forming in 2003 we’ve supported the launch of over 300 recruitment agencies across 29 sectors.
Interested in setting up? Talk to us…
From pre-launch to launch and beyond, we’ll help you every step of the way to getting your business running smoothly, allowing you to focus on what you do best - recruitment.