Starting a franchise

You’ve probably seen franchises advertised, but may be a bit unsure about what they are and be worried about the cash needed to fund them.

Many businesses now run as franchises, from language teaching to family magazines, and every business is different from another, with the amount of money you have to invest varying hugely between different types of franchise. Effectively, by purchasing a franchise you are buying a business off the shelf. This means your business can be set up in days or weeks and can be easily expanded, depending on the local restrictions in your contract, for instance, if other franchisees operate in your immediate vicinity.

On the pro side, franchises offer more flexibility than traditional work as you are basically self-employed, but you have the support of a company behind you. However, you need to remember that you are basically leasing a business from the franchise owner so you are not as free to make decisions about how you operate as you would be if you were in control of all aspects of your business.

Below is a guide to some of the issues you need to consider when setting up as a franchisee:

1. Are you the entrepreneurial type? Do you work well on your own? Being a franchisee often means hard work, involves a range of skills, from marketing to budgeting, and you need to be well motivated. Be clear before you start what your motivations are and whether you have the get up and go to make a business work. Be honest about your skills.

2. Although franchisees work alone, they are also part of a wider team to which they have to report back regularly as well as pay regular fees. Are you a team player or would you prefer a more traditional approach to self employment?

3. Consider carefully what type of franchise appeals, what kind of franchise your skills suit you to and research your market thoroughly. Can you make it work in your location? What is the financial outlay? Franchises can vary enormously in terms of what they require you to pay – not just the initial outlay, but ongoing charges. Include not just the sums mentioned but some sort of contingency budget in case things do not go as smoothly as you hope.

4. Being a franchisee means you will get initial support and will have a network of people in a similar position who can help you, but you will ultimately have to make your own decisions about how you run your particular franchise. You need to be able to work out a business plan which clearly outlines your targets, your budget and how you will develop your business long term, including issues such as taking on and managing staff.

5. Many franchises can be run from home and the same pros and cons apply to this as to other businesses. The cons include feeling isolated and finding it difficult to differentiate between home and office. There are ways around these, for example, by arranging lots of face to face meetings or by having a separate home and office phone line or a separate space reserved for work. Ensure your office space is comfortable and meets health and safety standards.

6. Check that your mortgage lender or landlord allows you to use your home as a business and whether your local authority will charge you business rates. Check that your buildings and contents insurance is covered if you operate a business from home.

7. Before you sign any contract to become a franchisee, you need to check the small print. Issues to look out for include: any restrictions on how you operate [the franchise may, for instance, seek to limit what you can do to protect its own intellectual property or place limitations on the area you can expand to], ongoing financial commitment [most franchises have an annual cost which may need negotiating in the early years], a get out clause if things go wrong [check if there are any financial penalties for opting out before the end of the minimum time period] and any help and support offered outside the initial welcome period.

8. As a franchisee, you can choose to operate your business in whatever business format suits you, from sole trader [best for smaller franchises] to a limited company. You need to investigate what is best for you.

Comments [1]

  • Jane says:

    Hi there,

    I am very interested in starting a franchise with a very low start up fee and the ability to pay back some of the fee weekly when I’m set up. I am confident that I can make a success of this business given the nature of it uses all of my natural skills and passions and the area in which I live is quite affluent.
    However I’ve had a rough few years and some financial troubles. I am just coming into the 3rd year of an IVA (which is 5 years) so another 2 to go. Am I obliged to declare this to the Franchiser? If so are they likely to refuse me even if I know I could make a success of the business?

    Thank you

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