Buying a franchise

So you're interested in buying a franchise? There are many franchise opportunities available. Opening up as a franchise business enables you to buy into a ready-made brand, usually one with an established trade mark and successful format, which can improve your chances of success. The five-year survival rate for new franchises is said to be 15 per cent higher than for other start-up businesses.

Business format franchising is the most common form of franchising. Widely recognised examples include Pizza Hut, Subway and KFC. Basically, the franchisor licenses established (and usually trademarked) products and services to the franchisee.

The advantages of buying a franchise

Buying a franchise means you needn’t think of an original business idea or start up completely from scratch. Instead you benefit from the reputation, experience and expertise of an established business franchise.

For financial and reputation reasons, franchisors want their franchisees to succeed, which is why they provide support through training, product development, marketing, advertising and management services.

Franchisees usually enjoy exclusive rights within their territory, while some banks can be more willing to lend to those seeking to buy into a reputable franchise.

The disadvantages of buying a franchise

In relative terms. buying into a successful business franchise is expensive. Franchisees pay the franchisor an initial fee up front and an ongoing fee thereafter (sometimes a percentage of turnover). Fees can be concealed within mark-up on supplies, which must be bought from the franchisor. Higher-profile business franchises charge considerably more.

The franchisee owns and operates the business, and so largely retains control over day-to-day management. However, the franchisor usually controls such things as marketing and sale of products and services – including key decisions about range and price. The franchisee cannot introduce new lines or sales when they like.

Also on the downside, there’s a risk the franchisor might go out of business or impose significant changes (eg a new brand identity), which can be expensive and disruptive. Potentially, the failings of other franchisees in the group could impact negatively on your reputation, while your options could be limited by the franchisor should you wish to sell up.

Should you buy a franchise?

If you’re highly ambitious and like to retain full control, a franchise might not be the best option for you. However, the franchisee’s role doesn’t have to be passive or devoid of challenge or satisfaction. You still need to bring energy, commitment, passion and pride to the business. Although the workload might be just as challenging as starting a business from scratch, many franchises don’t offer the prospect of earning a vast fortune, rather a steady return on investment. 

And although franchises can fail just as any other small business, if you’re not comfortable with risk, buying a franchise could provide more acceptable odds of success.

If you’re interested in buying a franchise, carefully consider all franchise opportunities before parting with any money – and seek professional guidance before you sign up. There are many business franchise opportunities available, but you need to be sure franchising is the best option for you.

More on this topic:

• Buying a franchise
• How to become a successful franchisee
• Successful franchise case studies
• Visit the British Franchise Association website

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