The franchise sector in 2010 - by HSBC
by Cathryn Hayes, HSBC
As we enter a new year, we take a look at what 2010 holds for the franchise sector - and find there are lots of reasons to be optimistic.
There can be no denying that 2009 has been a turbulent year; the UK has been in the longest recession since records began, interest rates are at a historic low, the Bank of England has pumped £175 billion into the economy and many businesses have been struggling.
But the UK franchise market has remained resilient, even when faced with the toughest trading conditions for years. The sector is home to some of the UK's most successful brands and, in spite of the economic climate, there is plenty to be optimistic about. In fact some sectors, like fast food and domiciliary care, have continued to expand their operations and reported increased profits throughout 2009.
So what does 2010 have in store?
Research from the Institute of Directors (IoD) found that 65 per cent of directors believe the economy will see an overall upturn in 2010/11. The IoD's chief economist, Graham Leach, said that incentives from the Bank of England, such as quantitative easing, have lead to an increase in confidence about 2010. But having said that, there is still a great deal of uncertainty.
HSBC's economic experts expect the Bank of England to begin increasing the base rate from May next year, finishing 2010 at 2 per cent and rising to 3.5 per cent by the end of 2011. Individuals will need to protect themselves against this rise.
The British Chambers of Commerce chief economist, David Kern, pointed to other factors as the cause of improving confidence. "The housing market is improving, the stock market is improving, and many businesses are realising that they are resilient, having survived the recession so far," he said.
Control costs
To ensure survival into the upturn, cost control is a number one issue. It is always vital to keep a close check on how much money the business is owed - franchisees should stay on top of invoicing, chasing, credit checks and so on.
If the franchisee is very dependent on a small number of large customers, there could be major problems if one of them fails while owing considerable sums.
Recovery is on its way, so this is a good time to be innovative and think about how to improve market share in the upturn. Franchises have a distinct advantage over other types of business here; as the franchisor, you can help keep your franchisees focused and share your considerable knowledge and experience.
The future of franchising isn't entirely controlled by external events - franchisees and franchisors can make a big impact to ensure the sector continues to be a successful, essential part of the UK economy. Clever marketing, high service levels and knowing your customer are key.
