What is Franchising? Plus, Franchise Opportunities to Consider

Have you ever thought about opening your own store, restaurant or café?

It doesn’t have to have your name on the sign. What if you opened a McDonalds, or a Starbucks?

With franchising, it’s easier than most people think.

Franchising is a lesser-known type of business model, but is perfectly viable and can hold a lot of weight for your credibility and prestige if you’re the kind of person who wants to dip their toe into operations, and being a part of a big business. 

If this concept is unfamiliar to you or if you’ve simply always wanted to know more about it, you’ll find out all you need to know here.

How does franchising work?

Franchising is a type of business model where you start up and run a new branch of an existing, well-established business.

Big businesses effectively lease their brand and all the reputation and protocol that comes with that to smaller potential business owners looking to start out on their own, just not from scratch. This can have a number of benefits but most notably, the idea that you’ll have a ready-made system already set to go, as well as a potential customer base who will also immediately be familiar with your new business as part of the wider monolith.

To understand this business model, we will begin with the terms “franchisee” and “franchisor”.

A franchisee is typically a budding sole trader or partnership that is interested in purchasing a ready-made business.

The franchisor is a business (typically a large one) that has opened the opportunity up and allowed for its brand to be leased for a certain period of time, typically for as long as the franchisee is willing to keep up with paying dues.

This is also usually officiated with a license of some sort, which would prove that this is a verified franchise of the original business.

This is not to be confused with white labelling, which is where you purchase a ‘blank’ manufactured product that you can then design yourself; or buying wholesale, where you purchase multiple brands’ products in bulk to then resell.

What are the advantages of franchising?

There are many advantages to franchising that can make it a potentially highly lucrative and cost-effective way to start a new business. These include, but are not limited to:

Access to an established brand and customer base

Working under a well-known brand has obvious benefits for franchisees. Not only are you following a tried and tested format, but you can also benefit from support and backing from these larger corporations. This can make things easier when seeking funding for upgrades and repairs, for example.

Reduced startup risks and costs

You don’t have to worry half as much about marketing to raise the awareness of your franchise – most of the hard work is already done for you. Customers will know what to expect from a big chain and will often flock to a brand name.

Training and support provided by the franchisor

Most big franchisors offer training programmes and first-hand support and have special insider tips or guidance courses to help you find and retain customers, set up your accounting and POS systems, as just a few examples.

Many help with your initial startup costs, such as equipment or vehicles, too. The level of assistance varies according to the franchisor – some have 24-hour-a-day helplines, and others have representatives on hand for quick visits to solve various problems. Either way, franchisees are not left to struggle alone.

Defined territory

The British Franchise Association (BFA) ensures that locations of franchisor outlets are thoroughly considered and evenly spread to gain the largest possible amount of custom and to avoid treading on each other’s toes.

Also, many franchisors can afford to secure prime trading premises for their franchisees, such as on the high street and busy shopping centres.

Greater access to finance

As a franchisee, you are looked upon more favourably when it comes to bank loans and overdrafts, than if you were a struggling entrepreneur trying to kick-start your own firm from scratch. The increased security and reliability of a large firm behind you means that banks will often offer you substantial loans to aid your start-up costs.

What are the disadvantages of franchising?

It’s not all upside with the franchise model. Here, we will cover the reasons that might dissuade an aspiring business owner from starting their franchising journey:

Upfront (and ongoing) fees to the franchisor

Franchisors will charge new franchisees a lump sum to start up the business using their brand name. Although this can be under £1000, the amount varies greatly according to the franchisor.

Many will insist that you purchase most of the materials you need from your own pocket, and some will demand that you have a certain amount of working capital before you are even considered to be a suitable candidate.

Unfortunately, the costs don’t end there. Franchisors will take a regular slice of your takings as royalty fees. If you have a tight profit margin, the bad news is that this fee is deducted from your actual turnover, not the surplus you make.

Once your fixed-term contract is up with your franchisor, your wallet will again be needed, as you will have to pay another fee to extend the time you can trade under the company’s name. This is based on how well your firm is doing at the time.

Although these costs may compare favourably to those if you were starting up on your own, it is worth remembering that you will often have to deal with all the normal overheads that a business generates. It all adds up to a fairly large amount and you must be sure that you have the necessary capital behind you before you embark on your franchise.

Lack of control over business operations

As mentioned above, each franchisee will gain training and guidelines on how the business should be run.

Although this is a helpful leg-up into running your own firm after your franchise is established, you may feel your entrepreneurial creativity is somewhat restricted.

You may get slightly frustrated if plans for your outlet are hampered by company policy on what you can and can’t do. Franchisors generally like their outlets to look and feel the same way, so you will have to work within someone else’s idea of what is best for your firm.

As well as restricting your independence, the penalties for falling out of line with your franchisor’s wishes can be harsh. Many franchise contracts stipulate that any wild alterations to the running of your franchise can lead to the termination of your agreement.

How to Find the Best Franchise Opportunities in the UK?

Finding a reliable franchise broker or consultant

A franchise broker or consultant can assist you with brokering a great deal and securing your franchise for you.

To find one, first we’ll eliminate the ‘bad franchise broker’ from your mind so that you’ll have a better profile of what a good one might look like.

A bad one may fail to answer your key questions (on time, or if at all), may have lacklustre credentials in sales or customer service, and may be slow to surface upcoming opportunities, if they even see them at all. This is the kind of person you want to avoid, and this should become apparent pretty quickly if you ask qualifying questions that would highlight these qualities when meeting with a broker, for example.

Ideally, a good one has knowledge of the industry and a proven record of matching aspiring business owners with franchise opportunities that have gone on to make them wealthy and successful.

In the process of finding great franchises, there is so much room for trial and error, and no real foolproof way of ensuring your broker is going to be perfect. Even the best brokers can sometimes be at the mercy of the market. But, a person with a stable overall record of accomplishments is most likely the person you will want to choose.

A franchise broker is just the same in theory as any other middle-man type of industry: the same as stock brokers, real estate agents and art dealers to name a few. You will have to do your due diligence in researching their history, background, and most recent accomplishments – and that can come from asking directly, seeing some evidence of qualifications or a quick Google/Trustpilot search.

But we must also not forget, there is also you to take into consideration. You could have the most amazing broker in the world, who gets you the best deal on a franchise at the cheapest rate and sets you up for success in every possible way. But if you personally don’t have the right characteristics, drive or personality to see the business through and make it successful, then it won’t be.

Making an informed decision and considering costs

You’ll want to have your plans in order, particularly if you’re looking to gain funding through an investor or bank. The resources you might need include:

• A business plan with a cash flow forecast included
• A basic overview of the labour costs that will be involved
• An average estimate of how much your business premises and bills will cost
• A business continuity plan in the case of emergencies and losses

3 UK Franchise Opportunities to Consider

Here are three UK franchise industries to consider, and a few currently available opportunities within them right now:

Conclusion

In conclusion, franchising opens up a breadth of options for a would-be entrepreneur. There are tons of opportunities currently available for you to try out, and these include stable brands that will continue to be around in the near future, even as the high street looks precarious for independents.

And it can be very lucrative, as according to Point Franchise, 97% of franchisee-run units in the UK are profitable.

While there are risks which we have covered above, as a business model goes this one is pretty tried and true.

With any business, our best suggestion for you would be to continue doing your due diligence as a businessperson as you would do with any other model, and take trends into consideration when you finally do decide to invest. Once you’re up and running, continue trying to innovate (while keeping on-brand for your franchise) and provide the best customer service you can.