The Welsh franchise sector is a growing market currently worth £500m. NatWest Director of Franchise, Kate Pullen, talks to Business News Wales about why franchise businesses are becoming increasingly popular with entrepreneurs.
There are lots of statistics that underline the strength of the UK’s franchise sector.
From its contribution to the country’s economy right through to the number of people it employs.
Yet when you’re running your own business the only numbers that matter to you are the ones that tell you if you’re making a profit or not.
That’s why I find a statistic in a report that we recently published with the British Franchise Association so interesting to read.
The publication looked at the UK’s franchise landscape in 2018 and impressively 93% of businesses reported profitability. A further 60% had franchised units that turned over more than £250,000 a year, while fewer than 1% closed because of commercial failure.
It’s easy to understand then why the number of franchise businesses in the UK has grown by more than 10% since 2015 to over 48,000 businesses.
Nearly 1,500 of these are in Wales where they contribute £500m to the economy, while collectively the sector drives £17.2bn and employs over 700,000 people.
We are seeing more entrepreneurs coming to us looking for funding and support to launch a franchise business, which is why NatWest has invested significantly in the franchise team I lead to be able to provide the necessary expertise and insight.
There is a misconception that banks expect you to be able to contribute a large sum of money when starting a franchise business, but that’s not the case. For example, we will typically lend up to 75% of the required funding.
The average franchise costs around £130K and on average four in 10 people will need to borrow money to launch this kind of venture. But when you consider some franchises cost as little as under £10K there are plenty of opportunities to launch a profitable venture.
Last year we lent £25m to people starting a franchise and we expect this figure to grow in 2019. We also expect the number of under 30s launching this kind of business to accelerate over the next 12 months. Eighteen percent of all franchise businesses launched in 2018 were started by people under the age of 30 and encouragingly 52% of them were women.
Since 2015 there has been a 20% increase in the number of female franchise entrepreneurs, while one in three franchises has an international arm to its trading operations. Despite Brexit 30% of franchise businesses not trading globally are considering this option as a route to expansion.
The biggest growth areas for franchising remain personal service and hotel and catering, although some retail franchise businesses also showed signs of growth last year despite the challenging environment faced by the UK’s high streets.
We also saw an increase in the number of multi-unit franchises – again testament to the sector’s profitability – with 7% growth since 2015.
Interestingly, more traditional start-ups businesses that have developed a profitable proposition want to explore how they can franchise their companies to generate further revenues. For small business owners, franchising can be a way to expand more quickly and cost-effectively in comparison to opening further company outlets. Again, we have invested to be able to support businesses exploring this route.
The Welsh and UK franchise landscape is certainly in a confident place right now with a trend for profitable, expanding businesses and growing numbers of female entrepreneurs. Our role as a bank is to continue supporting it and ensure we are working to help more people wanting to start their own franchise journey.
*statistics quoted are from the 2018 Franchise Landscape Report produced jointly by NatWest and the British Franchise Association.