Understanding the Impact of Brexit on Franchising
Alice Tuffery, writer
Published at 02/11/2017, Updated on 04/05/2022 , Reading time: 5 min
Brexit has prompted considerable uncertainty and concern for the business world, and many entrepreneurs are now facing challenges as they find their way through a changing economic environment. Here’s our guide to the impact of Brexit on franchising.
Has Brexit changed franchising in the UK? And is Brexit bad for the franchise model? These questions have been frequently pondered by franchisees and franchisors alike over the past few years. Unfortunately, there’s no simple answer - it’ll depend on the type of business you run.
Like most businesses, franchises need to re-evaluate their operations over the coming months and years, but it’s worth considering the impact of Brexit on franchising before making any hasty decisions.
The impact of Brexit on franchising
Legal implications
Although there is no specific legal framework governing franchises in the UK, there are common laws covering all businesses. Some were agreed by EU members to form a single trading market and protect EU residents, but now we’re out of the EU, they may no longer apply to British businesses.
Franchises should consider:
Intellectual property rights - Business owners used to apply for a single EU trade mark (EUTM) to protect their intellectual property, but now the government will create a UK trade mark. Franchisors won’t need to pay to be transferred across to the new system, but those with pending applications must register for the new UK trade mark.
Data protection - The EU General Data Protection Regulation (EU GDPR) no longer applies to the UK, but a new UK GDPR has now been created. In practice, most regulations will stay the same, but it’s worth checking your franchise still adheres to all the rules.
Competition law - While British businesses were previously affected by EU competition law, they’re now only obliged to follow regulations relating solely to the UK. But if your franchise business operates or completes transactions in an EU country, you’ll need to adhere to the EU rules too.
Employees - Brexit has had an impact on both franchisee and employee recruitment, as new immigration laws influence whether EU and non-EU citizens can work in the UK. Those who are interested in joining British businesses will have to go through a points-based system to determine their visa eligibility.
Product safety and licensing - Franchise business owners may have to re-evaluate their products and packaging to comply with UK laws relating to safety, hygiene, conformity, sustainability and EU labelling licences. Also, businesses will need to apply for an Economic Operator Registration and Identification (EORI) number if they continue trading with EU organisations.
Due to the nature of franchising and the relative safety it provides franchise partners due to proven business models and additional support systems, I think people will be more inclined to invest in a franchise than start up on their own after Brexit. —Dr Hannah MacKechnie, Radfield Home Care co-founder and franchisor
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Economic implications
People have been nervous about the impact of Brexit on the economy, so it’s no wonder prospective franchisees might be put off investing. Both the value of the pound and the economy’s financial stability have been affected so far but, thankfully, banks have been willing to continue funding franchise units to date.
Here are a few things to consider:
Importing and exporting - If you transfer goods into or out of the EU as part of your franchise operations, you’ll need to make sure they qualify for tariff-free trading or ‘preferential treatment’. If they don’t, you may be asked to pay extra fees, such as VAT and excise duties. To navigate these issues, businesses could transfer the financial burden to third parties in their supply chain or establish an EU hub to store and deliver products for European consumers.
State aid - The financial incentives you receive could be affected by Brexit, which means you may no longer be able to access grants and financial exemptions.
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Operational implications
As Brexit has removed many of the provisions designed to ease transactions between the UK and Europe, it’s no surprise there are now potential problems for franchises operating in Britain. Here’s one of the biggest issues to arise:
- Transport complications - The new regulations imposed on businesses trading with the EU create logistical as well as financial problems. While franchises may have to pay additional fees, they may also suffer transportation delays, as they’ll be asked to submit paperwork before moving goods in or out of the EU.
Brexit has increased the number of opportunities for investment into the UK from external buyers. Investors are discovering it is cheaper to invest into the UK from countries such as the US, because of changes in the exchange rate. —Henry Ziff, Transworld Business Advisors of London Managing Director
Consumer implications
Franchising is still popular in the UK, but as the industry has a strong B2C division, many franchises may be affected by changes in consumer confidence following Brexit. The UK left the EU on 31st January 2020, but as the Covid-19 pandemic struck soon after, it’s hard to distinguish the impact of Brexit on franchising and consumer behaviour.
Although many businesses have experienced a decrease in sales in the past couple of years, there is cause for optimism while the economy suffers:
- New potential markets - Consumers in foreign countries could be tempted to buy from UK businesses when the pound falls in value, making products cheaper. UK SMEs saw a 10 percent rise in international sales after the Brexit vote (PayPal), so franchises could find new customers outside of the UK and EU.
Is Brexit bad for franchising?
The impact of Brexit will vary from business to business, depending on the industry it belongs to and the transactions it completes. We recommend doing some in-depth research to find specific information and guidance relating to your operations, and make sure you’re adhering to all the regulations.
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Alice Tuffery, writer