Read This If You Want To Get Started in Franchising | Everything You Need to Know
How to Start a Franchise UK
Opening up as a franchise business allows you to buy into a ready-made brand, usually one with an established trademark and successful format. The failure rate for new franchises is generally lower than for other start-up businesses.
- Buying a franchise allows you to set up your own business without starting from scratch. You use a tried and tested formula, and benefit from the experience and support of the franchisor (the company offering the franchise).
- Buying a franchise can have both advantages and disadvantages. Careful evaluation of the franchise opportunity and its costs is crucial.
Is Franchising For You?
If you’re highly ambitious and prefer to have full control of all aspects of your business, a franchise might not be the best option for you. However, as a franchisee you will still need to bring energy, commitment, passion and pride, and the role can still be highly challenging and rewarding.
Although the workload might be just as challenging as starting a business from scratch, many franchises don’t offer the prospect of earning a vast fortune – just a good return on investment.
And although franchises can fail just as any other small business, if you’re not comfortable with risk, buying a franchise could provide more acceptable odds of success.
There are many business franchise opportunities available, but you need to be sure franchising is the best option for you.
Starting a Franchise for Dummies
To quote that well known book series, the following simplified information should give even total novices an idea of what franchising is all about, including things like how to become a franchisor and the requirements to start a franchise etc
A franchise is usually based on a proven business idea
- You are basically copying a product or service idea which the franchisor has already shown can work
- It is easy to check with existing franchisees whether the business really works.
- A good franchisor will continuously research and update the business idea.
You get to use a recognised brand name
- It can be easier to sell to customers who are familiar with the name.
- You will benefit from any national promotion undertaken by the franchisor. Bear in mind though that this is often funded by additional fees.
- You will also be able to use any trademarks the franchisor owns.
A good franchise operation will give you full support
Typically, this includes:
- Introductory training, usually covering general business skills (e.g., book-keeping), as well as training for that particular business.
- Help with setting up the business, such as finding suitable premises.
- A detailed operations manual which tells you how to run the business.
- Ongoing support and advice.
You will almost always be given exclusive rights to the franchise
- For example, in a specified region or to an exclusive client base.
- There will still be competition from other related businesses.
Financing the business is likely to be more straightforward
- It can be easier to borrow money to invest in a franchise with a good reputation than to find backing for an unproven start-up.
- Some franchisors have relationships with banks and can help you borrow the funds you need to start up, and local enterprise initiatives may supply start-up finance.
Get enough detail to give you a broad understanding of the business concept
- What is the business?
- Which trading locations or territories are being offered?
- Who are the competitors? A good franchisor should provide a realistic assessment of the competition.
- What steps does the franchisor take to extend and update the business concept?
Find out about the franchisor
- How long has the business been trading?
- How long has it been a franchisor? Many franchisors are members of the British Franchise Association. If yours is not a member, why not?
- What experience and achievements do the key people have?
- How solid are the franchisor’s finances? Ask for three years’ audited accounts and a bank reference.
- How many UK franchisees does the franchisor have? If all its franchisees are abroad, or only a few are in the UK, this shows the concept is not well tested in this country.
- Ask how the concept has been piloted. If it has not, why not?
- How many franchisees have failed? Check the reasons for failures.
The franchisor should provide an information pack.
- This prospectus answers all the basic questions.
- Top franchisors often provide a franchise award manual. Issued after an initial interview and confidentiality agreement, it contains all the information needed to conduct due diligence.
- Do not take everything at face value. Look for evidence that what the franchisor says is true and guarantees that it will stay that way!
Do as much research as possible!
- If you are seriously thinking about buying a franchise, gather information from a variety of sources.
- Aim to know as much about the industry and the market as you would if you were starting your own business from scratch.
- Talk to your bank. Most banks have franchising specialists and can offer information and advice.
- Read the trade press such as Franchise World and Business Franchise. Your business library may carry franchising magazines or hold directories of franchisors.
- Go to franchise exhibitions.
- Be wary of anyone selling franchises as an agent. As a rule, good franchisors almost always sell their franchises themselves.
- Is the franchisor completely independent? If not (for example, if the franchisor is the UK licensee of a US company), check what the original owner’s rights are and how these could affect you.
Check how much support you will receive
- What training is provided at the start? For some franchises, selling skills are crucial.
- Will you get help to set up the business? Some franchisors will provide advice on the premises and equipment you need, legal support (e.g., with planning permission), and so on.
- What continuing support is provided? This can vary from almost nothing to full support, including holiday cover when you are away.
- Can you get help when you need it? The franchisor may have support staff you can contact whenever necessary.
- Does the franchisor pass on its market research to you? This can help you keep up with national trends, new competitors and so on.
Check the terms of the franchise agreement
- How long will the franchise agreement run (typically five to ten years)? Check whether you have an option to renew the franchise after this time.
- Will you have exclusive rights in your area for the full term of the franchise?
- What conditions and restrictions are there if you want to sell the franchise?
- What happens if for health reasons you cannot continue the business?
Franchise costs and returns
- How much is the up-front fee? Good franchisors usually make most of their profits from the continuing stream of royalty payments from successful franchises.
- Initial fees should only reflect the costs of franchise development and administration.
- How much will you need to invest? Check that the franchisor’s figures include realistic costs. Ask whether items you buy through the franchisor (e.g., a sub-lease on premises) will include any mark up.
- What percentage royalty is payable?
- What price is charged for materials bought from the franchisor (e.g., stock)? The franchisor may mark up the prices. Alternatively, you may benefit from the franchisor’s buying power.
- What other charges (e.g., promotion, training) will you have to pay? Find out exactly what you get for your money.
Do not commit yourself in any way before completely evaluating the franchise.
- Visit the franchisor
- Ask specific questions about anything which is not clear from the prospectus.
- Do the people seem honest and open?
- Are they trying too hard to sell the franchise to you? Do not allow yourself to be hurried into making a decision.
If you’re interested in buying a franchise, carefully consider all opportunities before parting with any money – and seek professional guidance before you sign up.