A franchise can be a great way to set up a business without all the usual risks. You use a business formula which has been proven to work in the past – with support from the franchisor to help you get going.
This guide gives an overview of buying a franchise operation.
Types of franchise
The most complete franchise package is known as a ‘business format franchise’ – this gives you the whole blueprint for how to run the business, create and market the products or services, and brand the whole operation. For example, fast-food chains usually run local branches as business-format franchises.
Other types of franchises include:
- distributorships, dealerships, and agencies – you sell the franchisor’s branded products, but under your own name
- licences – you make and sell the licensor’s product
These other types give you more freedom in how to run and brand your own business.
Advantages and disadvantages of franchising
Franchises are generally more successful than other start-ups, because of the established market and the support you’ll get. You can benefit from the reputation and marketing of the franchisor – the products or services may already be known and trademarked, so there’s less work to be done promoting yourself.
Franchises will usually give you exclusive rights – for example, in a particular area or for a particular client base.
As well as this, the franchisor has a vested interest in helping you succeed – they might offer training and help with financing and local marketing.
Banks may also be more willing to lend finance for a franchise, as it’s a proven business model.
However, buying a franchise obviously means you’ll have much less freedom to run your business as you see fit – especially a business-format franchise. You won’t be able to change the products or introduce new ones, even if you see a good opportunity.
You’ll have to pay a fee to buy into the franchise – which can be high, depending on how successful the business is – and ongoing royalties or other fees. You may also have to pay for training to help you get started – check for hidden costs.
The British Franchise Association (bfa) offers a huge range of help and advice on franchising on its website at www.thebfa.org. It also has a list of accredited franchisors, with business details and case studies, as well as details of franchising events and listings for professional advisers.
Before you buy in to a franchise, it’s important to do your own research. Just because an idea has worked elsewhere, it doesn’t mean it’s guaranteed to work for you.
Carry out your own market research and financial projections – don’t reply on the ones given by the franchisor. If you find obvious differences, look at these carefully.
The franchisor should offer plenty of information for interested franchisees – explaining the business concept, the terms of the agreement you’d be given, and what they offer in terms of training and support. If anything isn’t clear, don’t be afraid to ask for clarification.
Contact other franchisees and ask for their experiences – issues they wish they’d been aware of before starting, or aspects of the franchise which they haven’t been satisfied with.
Finally, always get legal advice before signing any agreements.
This article is provided only for general informational and educational purposes. It is not offered as and does not constitute legal or other professional advice on the subject matter in question. You should not act or rely on information contained in this website without first seeking professional advice on the subject matter in question.