According to the British Franchise Association, we have been franchising since feudal times, when the lords allowed the peasants rights on their land in exchange for a regular fee. Pubs were the first major franchise, with licences granted in the 18th century, but it wasn’t until the 1950s that the business format of a franchise became a distinct business model.

The franchise industry now has an annual turnover of £13.7billion, 930 different franchisor brands, 39,000 outlets and 561,000 people employed in franchising. 92 per cent of franchise units are profitable.

The estate agency franchise is now a well-established sector of the property world. Sitting confidently among the large corporates and the long established independents, the franchise has come of age and there are dozens of estate and letting agency franchisors to choose from.

Estate agency franchise – the brand benefits

The estate agency franchise model is increasingly popular and there are many reasons for that, two of the most obvious are branding and technology. With the unstoppable force of the internet, recognisable, trusted branding across the country, or indeed the globe and having the constant investment in the technology to achieve profile on the web, is critical to success.

While a start-up independent agency can undoubtedly achieve local profile and build business without the trappings of a national group, it is almost certainly going to be easier to get the momentum going as part of a larger organisation.

Andy Bushell, Sales Director at Hunters, says that the UK estate agency sector is changing and, “these changes will continue to impact all estate agency businesses as the customer’s requirements change and further enhancements in marketing and technology take a grip.”

“When starting a business the worst mistake is not understanding your outgoings having enough working capital while you develop it.” Rob Clifford Century 21

The brand strength is equally important in the buoyant rental market, attracting many newcomers to the High Street. However, Dorian Gonsalves, CEO at Belvoir, says, “Many of them set up, offering cut-price deals, but our research shows that many of them fail. This is because they don’t have the strength of a powerful reputable brand behind them that will attract and retain the new landlords and tenants that are necessary for long-term success.”

Establishment and credibility

Estate agency franchises have gained an exceptional level of credibility in recent years, with solid results even during the tough times, leading to listings on the AIM for Winkworth, who were the first to take the plunge back in 2009, Belvoir and, most recently Martin and Co. Penny Sanders, Executive Head of Franchising at Martin & Co, says that their franchise offering is a prosperous route to fast track a business, “It allows agents to instantly adopt the credibility of our established national brand and, due to our recent flotation on the AIM, agents will also benefit from the reputation of being part of a Public Limited Company.”

Ready-made business

“Many new letting agents set up with cut price offerings. Many of them fail because they don’t have the strength of a reputable brand.” Dorian Gonsalves Belvoir

For most employees, going to work is a question of arriving on time, doing your particular job well and going home. Many employees have no concept of how the rest of the machine keeps running. Red tape, in every possible hue, surrounds the business premises, furnishing, equipment, software, cars, employees, tax, insurance, holidays, phones, customer service, training, sickness, maternity/paternity leave… an endless list.

With a franchise, many of these considerations are taken care of by the franchisor, with established procedures, systems and contracts, dramatically reducing the burden.

A franchisee who signs up with a reputable franchisor can expect to receive a whole raft of business systems that are tried, tested and ready to use. Dorian says, “These benefits include comprehensive training, ongoing
assistance with business development, expert mentoring and support with accounts, IT, compliance, marketing, acquisitions and of course, an exit strategy.”

Franchisor-Franchisee partnership

There is an impressive array of advice and information available to potential franchisees on the British Franchise Association’s website, including what to look for in a franchise. Equally important is to understand what a franchisor is looking for in its potential franchisee. Speaking to our contacts for this feature, it seems there is a fairly long shopping list, with tastes varying from one franchisor to another. It is a heady mix of conformity, ambition, entrepreneurial skills, and being someone they can get along with.

Ray Finlay, Regional Director at RE/MAX UK South, says, “We look for franchise partners, not necessarily from a current property background, as full training is given, who will embrace the procedures and systems in place to lead to securing market share and maximise profitability at the earliest time.”

Penny Sanders says that Martin & Co looks for ambition, “People who are proactive and hardworking, commercially astute, with good inter-personal skills. Overall we are seeking individuals who wish to develop a substantial business and with whom we can forge a long-term relationship.”

Andy Bushell at Hunters says its simple, “We are looking for like-minded business people that share our ethics for doing the right thing, firstly for our customers, then for our brand. We want to inspire entrepreneurial
spirit and develop our market share.”

The trade-off

The franchise principle is simple – the business is yours, but the brand and support system are owned by the franchisor, which allows you to trade under the company name, following its business model.

That brand and support system comes at a price; initially the franchisor grants the licence and (normally) receives a franchisee fee from the franchise owner. Thereafter the franchisor (normally) receives a percentage of monthly fees generated, or, in a few models, a flat fee per month, regardless of income.

The franchisor then uses some of this money to help the business grow through marketing, acquisitions, training, market research and supporting the network.

Franchisees have been known to say that these fees can hurt, especially when sales are thin on the ground, but, say the franchisors, the alternative, being an independent, will bring other costs, and, crucially, those costs are less easy to budget for.

The other trade off is, some say, that the business is never truly yours. There are limitations on growth, dependent on your licence; you can’t just change the name and, should, for example, another franchisee bring the ‘brand’ into disrepute, there could be a negative impact on your business.

This is the trade-off and the successful franchisee will accept that, along with the innumerable benefits.

The cost

With any commercial venture, the excited entrepreneur will often start with a ‘back of a fag packet’ calculation and promise himself rapid success and the proverbial yacht in the Caribbean.

“We are looking for people who share our ethics. We want to inspire entrepreneurial spirit and develop our market share.” Andy Bushell Hunters

A franchise business is no different from any other when it comes to aspiration, but good franchisors not only advise caution, but actively create a workable business plan and rein in any fanciful ideas.

“We have learnt, over the years, the common mistakes people fall into when starting a new business,” says Rob Clifford, Chief Executive, Century21. “The biggest is not understanding your outgoings and not having enough working capital while you are building your business.

“These costs are different for every territory and every franchisee, but we know from experience some of the average costs franchisees can expect to pay and we will support them in creating a meaningful business plan that realistically allows them to see the true opportunity at their disposal.”

Ray Finlay at RE/MAX says that the costs of buying into their worldwide brand are “Very favourable when compared to the standard domestic, somewhat limited, offering.

“There are three cost elements: initial fee for a five year renewable term; office set up costs (hard and soft costs) and lead-in requirement prior to establishing turnover.”

“We are passionate about helping franchisees develop their business. Our support does not end after the first day of trading, it is a continuous resource.” Penny Sanders Martin & Co.

Penny Sanders says that a Martin & Co High Street premises “would cost circa £80,000 with a personal investment of £35,000.

For those looking for an online set up the cost is circa £35,000, with a personal investment of £18,500. Resales are available but the cost of this varies depending on the size of the business.”

Dorian Gonsalves says, “Once a formal offer of a Belvoir franchise has been made, a deposit of £3000+VAT is requested. Two weeks before commencing the Belvoir training course the remainder of the franchise fee is due, which is £19,500+VAT.

When any business starts there will inevitably be ‘one off upfront costs’. A general estimate of £50,000 to £60,000 excluding VAT (reclaimable) is realistic to run an agency from a shop. This figure includes the franchise fee.”

Hunters offer three options, says Andy, “A Branch Franchise – a new cold start opening, the franchise costs £20,000+VAT and the franchisee retains 90 per cent of turnover. We charge eight per cent as a management service fee, with the remaining two per cent paid into a central marketing fund which pays for national brand exposure.”

Option 2 is a Conversion Franchise, “For converting independent businesses looking to take advantage of everything we provide, there is a significant package on offer which includes a free territory, rebranding of their existing premises, replacement of their boards and advertising media and a Day 1 franchise development conversion payment (typically worth £30,000 to the incoming franchise owner). The standard charges as detailed above then apply.”

Option 3 is a Personal Agent Franchise, “This is our unique model which enables individuals to set up and run their own estate agency business with an expected total investment of just £20,000. The cost of this franchise is £5,000 plus VAT.”

CONSIDERATIONS

Clearly, there are many options, the best place to start in your search for a successful and harmonious franchise is probably the British Franchise Association website and to visit Franchise exhibitions where the major Franchisors frequently attend.

All the estate agency brands also explain their offering very clearly on their websites and all are actively seeking additional franchisees.

Contacts:
● www.belvoirfranchise.com
● www.century21.com
● www.huntersfranchising.co.uk
● www.martinco.com
● www.remax-franchise.com
● www.thebfa.org
● www.winkworth.co.uk