Are you considering buying a franchise but have questions? As with any investment it’s important to know all the facts so you’re fully prepared and able to make an informed decision. We’ve compiled a list of the most common questions asked regarding franchising to help you understand the industry better.
What are the key advantages and disadvantages of buying a franchise?
Advantages: Buying a franchise will mean you’re buying into a recognised and established brand name and this brand awareness and reputation will make it easier for you to sell and boost your profits. Also, as the franchise is based on an already proven successful business idea, it’s much less likely to fail than a start-up – the latest bfa/NatWest industry stats show 93% are in profit.
Disadvantages: In addition to buying the franchise, you also need to pay royalty fees to the franchisor, meaning you don’t retain 100% of your profits. On average these are around 5% to 10% depending on the franchise, but bear in mind this is the real price you are paying for the brand, the business model, marketing, ongoing support and often a whole lot more besides. Generally, the more the franchisor does for you the more you pay in royalty.
Will I be able to earn an income from day 1?
Income maybe, profit, probably not. All franchises involve a start-up cost whether it’s a few thousand, a few hundred thousand or a few million, so expect it to take while before you are paying yourself the big bucks. Your franchisor will have shared financial projections with you before you commit to anything, so you should have a pretty good idea of what the timescales for profitability are.
Is my investment safe?
Although franchising has shown itself to be more resilient in recent times than other business sectors, there is still no such thing as risk-free business. However, by doing your research and investing in a business that is aligned with your skills and interests you can massively reduce the risk of it failing and subsequently taking your investment with it.
What help does a franchisor provide to franchisees?
A franchisor is there to guide you through your franchise journey and ensure you are in the best possible position to perform well at all times. It’s in both the franchisor and the franchisee’s interests that the franchise performs well, so there should be sufficient support and guidance available at all times. Unlike launching your own start-up, when you begin operating a franchise you’re not alone which can be comforting. It depends on the franchisor, but typically they will provide a fully comprehensive training programme, resources, guidance and support to set you on the best path for long-term success.
Do I need to prepare a franchise business plan?
Yes you do – and this is a good thing. In order to secure funds, banks or lenders will expect to see a full business plan which shows that you have a full understanding of the market and potential projected earnings and risks. However, having a detailed business plan is also a great way to document exactly what you want to achieve and how you are going to achieve it allowing, thus enabling you to review your performance against your forecasted projections.
Can the franchise contract be terminated?
The franchisor has the right to terminate the contract if you break the franchise agreement or fail to meet minimum agreed performance standards. However according to the British Franchise Association Code of Ethics, franchisees must be given notice to fix any breach in order to prevent this termination. Breaches can include not paying fees, failing to send the franchisor regular sales reports or failing to meet expected performance levels. In reality though, terminating is the last thing a franchisor ever wants to do unless the franchisee is really unsuited to the business and unlikely to ever make it work. It’s all about choosing the right franchise for you!
Do I need to have previous experience of running a business?
Not necessarily, although a bit of experience in the business sector may be beneficial. While there are some brands that will only recruit franchisees who have experience in the sector, others actively discourage this as they prefer those who may be more likely to adhere to the franchisee manual. Most franchisors will actually place a higher value on the candidate as a person, preferring to consider personality traits and transferable business skills rather than the content of their CV. At the end of the day, it’s about the right match for the franchisee and franchisor.
Can I leave the franchise if things aren’t going well?
Most franchises have at least a 5 year term and will not contemplate you terminating early without at the very least finding a buyer that it completely qualified and acceptable to the franchisor. Of course, the specific circumstance around you wanting to leave will always have an impact on your options and the flexibility of your franchisor. A simple word of warning would be, if you are worried that you might not want to keep the business for at least the first term, then don’t buy it.
Becoming a franchisee is not a decision to be made lightly - if things don’t work out, this leaves your initial fees and set-up costs at risk. Additionally, if you abandon the franchise early, your franchisor may claim damages from you and can also prevent you from being involved in any similar or competing businesses for a period of time after termination.
Although there are endless benefits to be reaped with franchising, it is very important to take time to consider all the risks and costs associated. Once you have of course, there has truly never been a better time to get into franchising! The industry contributed over £17 billion to the economy in 2018, and its growth is on a steady rise. Get in touch with us today and we can help you begin your franchise journey!
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