Turn a low-cost franchise into a high-value business

Franchises with low investment levels have the potential to make substantial returns for investors, Linda Whitney says

A low-cost franchise can be turned into a high-value business.

A former franchisee with OSCAR Pet Foods - investment level £8,995 (plus VAT) - sold their business after eight years for just under £100,000. So how can you do that?

First, ditch the idea that low-cost franchises are only for people looking for ‘lifestyle’ businesses, designed to provide a steady income rather than offering an opportunity for growth.

It’s true that many low-cost franchises do make good lifestyle businesses. Often you can work from home, with no costly business premises, and can run your business around a family.

Usually, expenditure on equipment is low and you can start by delivering the service yourself, so you save on staff costs. You are less likely to have to borrow start-up funds, so debt repayments do not eat into your profits.

Low cost need not mean low profits

The 2018 NatWest/British Franchise Association survey shows that 73 per cent of home-based businesses are profitable and states: ‘There are no significant differences between smaller and larger businesses in terms of profitability’.

While the report found that franchisees who invested more than £20,000 to set up their business tended to have higher profitability than those who invested less, this was not a hard and fast rule.

If you want to buy a low-cost franchise with an eye on swift growth, look for one with growth potential.

Choose wisely

Don’t buy on price alone. Choosing a franchise in a growth sector, such as care or personal services, will help you grow it faster, as you will be sailing with the wind, rather than against it. Selecting a business in a sector you are passionate about will increase your chances of success.

Check the franchise package. Some franchisors offer more franchisee support and some are more growth-focused than others.

Talk to franchisors and their existing franchisees about your ambitions - does the franchisor offer the right level of support for growth?

Look for price reductions

Franchises sometimes offer reduced-price entry, which can be an opportunity to get in at a better price. Countrywide Signs, the franchise that involves managing estate agents’ For Sale and To Let boards, is offering a new franchise package for £14,995, £12,000 less than usual.

Justin Pearce, Countrywide Signs’ franchise development manager, says: “We have a few gaps in our nationwide network that we want to fill by offering them as smaller territories.

“They still offer the chance to build the business from one van to three and you can expand further by buying additional territory. The franchise package offers all the business essentials, including full franchisee support.”

Start with a growth mindset

George Demetriou, who invested in the Seniors Helping Seniors care franchise in its early days, when it cost £10,000, was looking for swift growth because he was already in his 70s.

He says: “Delegate day to day operations as soon as you can, leaving yourself free to set strategy.”

Take your business seriously

Franchisors offering low-cost franchises commonly complain that some potential franchisees see the business as a part-time job, hobby or way of making ‘pin money’. All franchisors want you to grow your business, as it means growth for them too.

Alison Hort, the East Derbyshire franchisee for OSCAR, says: “This is a great business in a growth market and the low investment level and potential suited my personal needs and budget, but it is definitely not a hobby business. Dedication and time devoted to the business are essential for success.”

Ask for help from your franchisor

All franchisors will offer help growing your business - it is a much easier route to overall franchise growth than taking on new franchisees.

For you, expanding your franchise by growing to employ staff, and perhaps buying another area, is cheaper and easier than starting your first one.

Tina’s growth strategy

Tina Strong invested in her first Stagecoach Performing Arts School franchise in London and now has three Stagecoach businesses in her home town of Edinburgh, employing 19 staff.

She says: “The main reason I chose Stagecoach was because I could run it around a family, but I always wanted to build my business with profit in mind.”

The Stagecoach franchise currently costs £14,995.

Tina has always had a strong growth strategy: “We do lots of advertising and market our classes online and I ensure all staff engage with parents to increase the chance of referrals.”

Tina also keeps all staff aware of her growth strategies: “We have done business planning sessions involving the whole team. Last year we all spent two days away, which included one day looking at the growth of the business, so everyone can see the bigger picture.”

She was aided by a 28-day business accelerator course provided by the franchisor.

“Supported by a regional franchise manager, I worked with five franchisees around the UK each week to share success and top tips,” Tina explains.

“You work on aspects of your business that you find more difficult and have targets to reach. I found that working with other franchisees gave me greater impetus.”

She has retained the ability to work around her family at the same time as prioritising business growth.

“We have seen strong growth between 2013 and 2019 and now I have two children,” Tina says. “A virtual personal assistant helps with admin, so I have time to focus on strategy. I am now making an income of £100,000 a year and in a couple of years I will look at expanding again.”

Tina’s advice for those seeking to grow a franchise is: “Invest in the business from the beginning. In my first year, I ran the franchise alongside my job, so I could afford to invest all the earnings from my franchise back into growing the business.”

She adds: “If you are not willing to take the risk of putting in extra investment to grow your business, you can be putting in a lot of effort for a small return - like paddling a boat that’s going nowhere.”