The UK Governments Promotion of Franchising
Clearly in the UK it is easy to start trading in business for the first time. There is minimal red tape allowing a sole trader, partnership or small limited company to form and trade quickly. There is also generous thresholds regarding turnover and having to pay VAT. This is important for business to domestic traders where the charging of VAT is a not a reclaimable item and increases the cost of service provision to the consumer. There is also the government loan guarantee scheme that can be applied for if the business concept qualifies. Business Link has an extensive resource section on its web site and provides much training and support to local business. There are compressive incentives for would be entrepreneurs to go into business in the UK compared to doing the same in other countries in Europe. However, there remains one key shortfall in the governments strategy to getting people into business; how does it help reduce the huge number of new business failures?
Most start up businesses fail within the first two years of trading and few make it to five years and over which is clearly a damaging statistic given the loss of capital, taxable income and hardship caused to those that are caught in business failure. In contrast statistics from the BFA NatWest franchise survey clearly show that most franchise businesses succeed and over 90% are running profitably. It is therefore surprising to note that the government has no clear integrated strategy for promoting and facilitating business format franchise development in the UK. This is further compounded by the fact that franchise businesses in the UK has grown its contributions to the UK’s GDP from £5.3 Billion to over £9.1 Billion over the past ten years alone. In addition there are now 327,000 people employed in franchising with the number set to rise as franchise business grows in the UK.
It could be argued that the franchise sector is growing successfully without government help as the number of business format franchise systems has risen from 414 in 1994 to over 700 in 2004. However, it is also worth pointing out that this number may have increased significantly with strategic government backing of the sector.
So what backing could the government provide? Firstly there could be grant packages that help quality businesses open up for franchise development in the UK. Business format franchising is effective but it is expensive to set up, launch and build. It usually takes around three years for a new franchisor to break even and some fail. This not only affects the franchise owners but also the franchisees that have invested their life savings into the franchise system. Specific funding for new franchisors via a government loan guarantee scheme could help resolve this problem and encourage more businesses into franchising. Government backed incentives to business and individuals could help reduce the number of new business failures. This would be a good move both politically and economically.
The Government needs to look at backing franchising in the UK more robustly across the board. Business Format Franchising is a success in the UK. It is a success because it makes new business people into successes and that is good for our economy and everyone in it. From clearer education about the benefits of franchising to funding and financial packages specially designed for the franchise sector in the UK, the government would do well to look at this seriously and do it soon.