Frequently Asked Questions about UK Franchising
Franchising, to put it very simply, is a business model that connects well-established businesses (franchisors) that have a proven way to make money with independent, smaller businesses (franchisees). The franchisees run ‘the franchise’ under the brand name of the franchisor and pay a certain share of the sales back to the franchisor as royalties.
In the UK, franchising has exhibited remarkable growth over the past few years. Over 40,000 franchise businesses are currently operational in the UK, providing employment to 600,000+ people. To learn more about franchising, please visit our What Is Franchising guide.
Franchising essentially works on the principle of symbiosis. Franchisees usually have access to adequate capital, but no means of turning it into a business, while franchisors possess a proven strategy that requires more capital to expand into more markets.
By connecting the two, franchising also promotes the proliferation of the business culture that helps the economy by creating more employment opportunities. To read more about various types of franchise businesses and how they work, please visit our How Franchising Works guide.
Anyone who’s willing to raise the required capital can potentially become a franchisee. Many franchisors, especially the popular ones, have certain criteria when it comes to choosing their franchisees. It often helps to have some experience in a relevant business. The best way to find out if you are fit to become a franchisee is to directly contact the franchisor.
Like all things in life, franchising is without guarantees. Franchise businesses, however, are generally considered to be much more likely to be profitable than start-ups and other small businesses. In fact, as many as 97% of all franchise businesses were found to be profitable in a 2016 BFA study. Moreover, 29% of franchisees succeeded in buying and running multiple units, showing signs of great promise for the industry on the whole.
Most, if not all, would-be franchisees invariably find themselves grappling with this question. From gourmet restaurants to local gyms, thousands of businesses franchise their operations, leaving franchisees with a long list of options.
Confusing as it may be, this abundance of choices is the greatest asset for you as a franchisee. You can follow a systematic method of addition and elimination to shortlist your options and eventually weigh them against one another to decide which franchise is the most suitable choice for you.
To learn more about this process, please visit our How to Choose a Franchise guide.
Buying a franchise can often be one of the most important decisions of your life. Therefore, before you buy a franchise, you need to consider several things.
For starters, you should be aware of what you are getting into. As we noted earlier, it often helps to have some relevant experience. Moreover, you need to be passionate and excited about the work you will be doing.
Then come the hard yards. You will need to run a number of checks on the performance of the franchisor, other franchisees and the overall industry. You will need to know how much capital you will have to raise, what the recurring outgoings will be and the volume of sales you can expect to register.
The market research and cost analysis should, in tandem, be able to convince you that the franchise has a good chance of returning profits. You can also seek feedback from the franchisees that are already in business with the franchisor. While all of this may seem daunting, if you go about it in a determined way, you can have your risks covered to a great extent. Please refer to our Buying a Franchise guide to know more. For your convenience, we have created a handy checklist that can help simplify the entire process. You can request this checklist here.
Responsible franchisors often provide ongoing support when it comes to managing the inventory, optimising the sales, training the staff and other operational tasks. In addition, franchisors also provide support regarding quality control and marketing. The terms of ongoing support are usually made clear in the Franchise Agreement.
Financing a franchise business works like franchising any other business. Once you have finalised which franchise you wish to buy, you may want to discuss the matter with the franchisor. Many franchisors have on board franchise financers that can help you secure external financing.
If not, you can prepare a detailed business plan and present it to specialist lenders. We, at franchise4u, offer streamlined and customised franchise solutions to franchisees, in collaboration with our experienced partners. Please contact us to know more about our franchise finance solutions.
A business plan is the documentary summary of all the important aspects of your business. These include the summary of your business model, along with studies like market research, cost analysis, sales projections and profitability analysis. The objective here is to explain to the reader how your business aims to make money.
If you are applying for franchise finance, it’s imperative that you draft a thorough yet to-the-point business plan. Please visit our Franchise Finance guide to know more about how you can draft a convincing business plan to secure a franchise loan.
The Franchise Agreement is a legally binding document that details the terms of business between you (the franchisee) and the franchisor. Since most franchise businesses operate over a period of five years or longer, it’s important to make sure that you do not get into an unreasonably or unfairly termed Franchise Agreement.
The best way to safeguard your personal and financial interests while drafting the Franchise Agreement is to engage the services of a specialist franchise lawyer. Before you sign the agreement, do be sure to read it through and understand all the terms.