Starting a franchise business and launching a new location for a well-loved brand is a major endeavour and not something anyone should embark upon without having done their research. While we can’t cover off every aspect of franchising here, we can manage the basics; so read on to get a baseline understanding of all involved.
How do Franchises work?
Franchised businesses are organisations operating under an already established brand name, for a fee. The exact operations and requirements of every franchise differs and there are set requirements for the business stipulated in the franchise agreement to ensure a consistent customer experience is received no matter who the franchisee running an individual location is. For example, most McDonalds restaurants are franchises – but the food and experience received in each varies little.
A franchisee pays the franchisor a one-off fee for their use of the brand name and assets before paying a set fee or profit percentage throughout their operations. As a result, they receive business support, marketing materials and operational guidance from the brand.
What are the benefits of operating a Franchise rather than starting a business from scratch?
Starting a franchise business allows entrepreneurs a degree of safety that launching a start-up simply doesn’t have; and with it, a much higher chance of success and profit.
With a franchisor offering training, proven business protocols and processes, and a well-established brand that consumers already recognise (and hopefully trust), the foundations for success are already laid. This lessens the burden on the entrepreneur and increases competitive advantage. As a result, some 93% of franchises turn a profit within a year – whereas it’s estimated that some 90% of start-ups fail in the first two.
What Franchise opportunities are available?
There are now a myriad of franchising opportunities, spanning just about every industry and sector. There are organisations specialising in collating franchising information across industries or you can carry out your own research.
When researching into franchising opportunities, it’s important to consider the following:
- Do you actually hold interest in or care about the products/services that the franchise offers?
- How much money does the franchise require for the initial investment and are the ongoing fees reasonable to you?
- Does the franchise offer financing or will you need to approach other lenders?
- Does the business operate in a method that’s suited to your way of working?
- Are you confident that the brand offers sufficient and appropriate management support?
- What competition is there in your area for the franchise?
How can I speak to other Franchisees?
Most good franchisors will offer potential franchisees the details of some of their existing franchisees so that they’re able to connect with them and discuss their experiences. If this isn’t offered, it may be a red flag in terms of their business support. It is always recommended that you speak to other franchisees of a brand before committing yourself to understand their operations and attitudes; but you may need to contact them directly if a franchisor isn’t forthcoming with their information.
What does it cost to start a Franchise?
A franchise usually begins with an initial investment fee to the overarching brand in order to license their name, and products and/or services. This can range from just a few hundred pounds to millions, depending on the franchisor, before costs such as property, equipment and staff are involved. Most franchisors will list this first cost upfront on their website or in their franchisee information pack.
After this initial investment, a franchisee will usually pay the franchisor either a set fee monthly/yearly thereafter, or a set percentage of the profits made.
There are a whole host of associated costs with the launch of a franchise. These include, but are by no means limited to training costs, travel costs, local fees and taxes, property acquisition, property fit-out, staff wages, marketing and advertising budgets and equipment purchases.
Do I need to form an LLC or operate as a Sole Trader to be a Franchisee?
How you choose to create your business entity is a personal choice, but some franchisors may insist on a certain method. Dependent on the brand, you may be able to operate a sole trader but it may be that it’s more appropriate to form a company.
It’s important to seek legal advice on which approach may be the best for you as each hold different responsibilities and risks.
How much money do Franchisees make?
Exactly how much money franchisees can make depends on the success of their business and how well it is managed. It’s difficult to give a ballpark figure spanning all industries as they vary so much, but some franchise associations report that franchisees can expect to claim a salary of between £50,000 - £70,000 per annum.
How do I market a Franchise?
Many franchised brands offer marketing material and strategies for the promotion of their business, in order to keep it consistent between all of their locations. However, in some instances, the brand provides guidelines for franchisees to offer but allows freedom for marketing using these as a baseline. In circumstances like this, it is always recommended that franchisees seek out the advice of marketing specialist locally who can provide expert support to aid the promotion of the business.
How successful are Franchises?
Franchises are always ranked as less risky and more likely to succeed and turn a profit than start-ups. As a result, they’re growing in popularity: even through the difficult conditions of the last few years. During the last recession in the UK, franchising actually grew by 20% - unrivalled by any other business model. Of course, not every franchise is a guaranteed pot of gold but there is great potential within them to do well and flourish.