With close to 1000 franchise businesses in the UK according to the British Franchise Association, it’s clear that it’s a business model that holds much appeal - to both franchisees and franchisors alike. On the other hand, buying a franchise isn’t right for everyone and, as with any venture, things can go wrong. We worked with Ashtons Franchise Consulting to put together these tips for UK entrepreneurs on buying a franchise.
Buying a franchise with a powerful brand at its core can be good option for budding business people or entrepreneurs. Reaching customers is made far easier when there’s already a defined market, your products or services are widely known and admired, and much of the advertising and marketing is done on your behalf.
Some are attracted by emerging franchise concepts rather than those that are well established. These concepts can provide early business opportunities they can apply their attention to, thereby supporting the franchisor as a foundational franchisee. However, one drawback of becoming a foundational or pilot franchisee is that there are often few established franchisees to refer to in the course of your early enquiries.
If for you the appeal of self-employment stems from a desire to do things your own way, you may find buying a franchise leads only to frustration. Big decisions will be made over your head, and you’ll have to live with their consequences. You’ll also need to be willing to work very hard, putting in the kind of hours expected of any other kind of entrepreneur.
As a prospective small business owner, you’ll often read about franchises as if they all shared the same arrangement. In fact, there are two common types of franchise and some more rare forms. The two most commonly associated with smaller businesses are:
This is the most common form of franchising, and it’s likely to be the type that you are considering. A business format franchise involves a fairly complete integration of your business into theirs. You (the franchisee) will do more than simply distribute the franchisor’s products and services; you will have to abide by their business procedures too, signing a contract to cement your mutual rights and obligations
Offering franchisees more freedom than would be provided in a typical business format franchise, these involve only limited integration between the businesses. With product franchises, the dealer (franchisee) is licensed to sell the franchisors’ products, perhaps exclusively and with more-or-less stringent conditions.
You may find that, overall, the barriers to starting a successful business are easier to negotiate when buying a franchise than if setting up from scratch. But, as with any business venture, no matter how small the initial outlay, it’s essential to conduct due diligence and ensure your aims and expectations are realistic before going ahead.
Presented in glossy publicity materials or promotional videos, almost any business proposition can be enticing. But buying a franchise and making it successful is not just about the business you’re entering; it’s also about the extent to which it chimes with your own qualities and skills.
Are you hardworking, committed to high standards and similarly capable of foregoing a large amount of independence? Just like running a business on your own, or working 9-5 as an employee for that matter, franchises aren’t for everyone. So be clear about your reasons for considering buying into one: lower start-up costs may motivate you at the outset, but are unlikely to sustain you in the long-term if the nature of the work isn’t for you.
Whether you begin self-employment with a franchise or on your own, it’s important to have the support and commitment of your family and partners because the initial start-up, launch and development phase will consume a fair amount of your time. Enthusiasm, determination and a willingness to persist towards your goals will be a tremendous help to you and it’s helpful to know that those closest to you can support you in the more challenging moments.
The ‘check before cheque’ list of questions at the end of this article will help you prepare to become a franchisee, but it’s also helpful to review The British Franchise Association (BFA) list of 50 questions to ask a franchisor before taking up any franchise opportunity. These range from understanding how their head office works to finding out what the required opening hours of your new franchise business will be. That gives some indication of the commitment you’ll need to put into making the right decision.
Franchisors should be able to present you with a wealth of data, explaining their financial record to date and their forecasts, which have to be backed with evidence. In fact, this is one of the requirements for membership of the BFA so should be provided as a matter of course, if not at the outset then certainly before any contracts have been signed.
The franchisor should be deal with you on a transparent, considered basis. Expect them to explain the fine details of their fee structure as well as the investment expected of you. You may wish to take legal advice before proceeding.
You should also get the sense that your prospective franchisor is interested in you. You will be going into business together, and your behaviour could affect their reputation as much as the other way around. Furthermore, if you were permitted to become a franchisee with essentially no prior checks, then you can assume the same is true of other franchisees in the business. Their poor behaviour, from failing hygiene inspections to offending customers, could easily reflect on you.
Unfortunately it’s impossible to provide a one-size-fits-all or even a meaningful average to answer this question. The investment expected of you will vary enormously across franchises. Some will finance leases, refits and more, while others will put the burden more heavily on your shoulders.
The BFA’s directory lists the typical start-up cost and minimum personal investment of each franchise opportunity. This gives you transparent and comparable figures for each of their members. While getting an accurate sense of the fees and investments expected is essential, so will it be to have a margin.
Choosing a business with an established name will hopefully, offset any loss of regular income when leaving regular employment. But it will still take time to build a client base and there will be seasonal fluctuations and other issues to consider (in most businesses’ cases), so you’ll need to have a healthy amount set aside as working capital. Some franchises will expect you to pay for some or all of your own advertising, for which the costs could vary considerably depending on your sector, locality and other factors.
It may be tempting to assume that there’s no need for a business plan if you’re buying a franchise. In fact, there are good reasons to put one together, one of which is simply to check that the numbers from your franchisor match your own calculations and expectations.
It may be easier to write than a standard business plan, particularly as much of the basic business information, as well as the marketing details and financial projections, will already be in place.
Even if you decide ultimately that you don’t need to make a business plan, circumstances may force the issue. If you need to raise capital from the bank, a business plan is essential, and your franchisor may also wish to see one. Again, if they do not, it may be worth asking them why. After all, it’s as much in the franchisor’s interests as your own to have a clear sense of direction from the outset. The business plan is also a living document that will adjust according to the experiences and results that you have in your first months. It is a valuable way to keep track of progress and ensuring you continue to have the financial resources available to support the business during the growth phase.
There are numerous websites listing franchise opportunities in the UK. One of the biggest online directories consists exclusively of members of the BFA, a status that confers certain protections for franchisees. You can find the BFA member directory here .
Another option is to attend a franchise exhibition. These take place across the country and offer you the chance to chat face to face with a host of franchisors about opportunities in your area. This article explains more about franchise exhibitions in the UK and their benefits.
For additional information, take a look at Ashtons Franchise Consulting’s ‘Check Before Cheque’ checklist.