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Buying a franchise

Buying a franchise is an attractive way to start running your own business.

Follow our guide about buying a franchise, including understanding costs, operation and what to look for to get the best franchise for you.

If you want to run your own business but can't think of a great business idea, then a franchise could be the answer.

A franchise can be less risky than starting a business from scratch, as a franchise involves buying the rights to sell the branded goods or services of another already established company.

When buying a franchise, you'll typically pay an initial fee to use the brand and the business model of the franchise owner - known as the franchisor.

You then pay royalty fees - usually a percentage of your profits - to the franchisor for ongoing brand and company support so you can build your business.

Advantages of buying a franchise

With a proven business model and support of a parent company, franchise businesses have a much higher success rate than start ups.

You're often given training and help in setting up your business, and you'll benefit from any brand advertising by the franchisor. Raising finance is easier for a franchise than it is for an unproven start up.

Disadvantages of buying a franchise

Buying a franchise can be costly, and the franchisor will expect a share of your profits or other regular payment.

Franchises offer less flexibility - you have to run the business according to franchise owner's procedures and restrictions, and there's less opportunity to grow your business by adapting to market changes or customer needs.

Restrictions may also make selling your franchise difficult at a later date.

Essential steps when buying a franchise

Be sure to research potential franchise thoroughly before deciding to invest. Consider the following questions:

1. What type of franchise is it?

Make sure you fully understand the nature of the business and how the franchise works, including what locations or territories are being offered, how many other franchises exist, and the level of competition.

2. Who is the franchisor?

Research the background of the franchisor. This should include how long they have been in business, how many UK franchisees they have and whether they're a member of the British Franchise Association.

Check a franchisor's finances - ask for a bank reference and to see their accounts.

3. What does the franchise cost?

Know how much the franchise costs and what you get for that investment.

Many franchisors make their money from ongoing royalty payments, so your initial fee may only cover the business set up and administration.

Find out how much working capital you need to operate. Learn what royalty fees are charged, so you can assess how much profit you can make from the business.

Check too if you need to pay extra fees for ongoing marketing and brand advertising.

4. What support will you get?

One of the most attractive aspects of buying a franchise is buying into an established business but you'll only benefit from this if the franchisor provides both initial and ongoing support.

Find out what training you'll receive and what support is offered to help you set up and run your franchise business.

5. What are the trading rules and restrictions?

Establish how long the franchise agreement will run and whether you can renew after this time.

What restrictions are in place for operating the business, such as pricing, suppliers and equipment?

What happens if you decide to sell the business or cannot continue for some reason?

6. Talk to other franchisees

Speak to existing franchisees to learn the realities of running the business, including the risks, opportunities and unique business challenges.

Learn more about entrepreneurship with our free online courses in partnership with the Open University.

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Plus free courses on finance and accounting, project management, and leadership.

Disclaimer: The Start -Up Loans Company makes reasonable efforts to keep the content of this article up to date, but we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. This article is intended for general information purposes only and does not constitute advice of any kind, including legal, financial, tax or other professional advice. You should always seek professional or specialist advice or support before doing anything on the basis of the content of this article. 

The Start-Up Loans Company is not liable for any loss or damage (foreseeable or not) that may come from relying on this article, whether as result of our negligence, breach of contract or otherwise. “Loss” includes (but is not limited to) any direct, indirect or consequential loss, loss of income, revenue, benefits, profits, opportunity, anticipated savings, data. We do not exclude liability for any liability which cannot be excluded or limited under English law. Reference to any person, organisation, business or event does not constitute an endorsement or recommendation from The Start-Up Loans Company, its parent company British Business Bank plc, or the UK Government. 
 

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