Five things you need to know before buying a franchise


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For many future business owners, franchising is the opportunity to run your own business without the risk of starting a company from scratch.

Normally, the franchise will be tried and tested, mistakes and problems will have already been made and solved, while the business concept will be proven so that you know potential customers want to buy the product.  

It is clear that there are many positives to owning a franchise, but before you rush in and a sign away thousands of pounds for a five-year commitment, here are five things you need to know first: 

Research is key 

Not only is buying a franchise expensive, but you are normally agreeing to a five-year contract. This is a huge commitment so you must be 100 per cent certain that the business you are buying is right for you. How do you do this? Simple - research, and lots of it. Research the franchise that you are thinking of joining. Research the franchisor. Research its industry. Research franchising in general. 

There are many different types of franchisors out there, some will be honestly dedicated to growing their business through franchising; others, however, will be just looking to make some money quickly. Research should help you decide which camp the franchisor you are talking to fits into.

A great form of research is speaking to franchisees, past and present of that franchise, to find out what they have to say about the business. And don’t just depend on a list of franchisees given to you by the franchisor, instead do some independent investigating as well. 

Other forms of research can include visiting exhibitions, online forums, meetings with the franchisor, the company website, even just typing the company’s name into Google can bring up a wealth of information. 

What you get for your money 

When you buy a franchise you pay an upfront fee, but you also often have to pay on-going fees, either monthly or annually. These can be taken in a number of ways ranging from a set fee to a percentage of your turnover. Look carefully into what you are going to have to pay compared to what you are expecting to earn, occasionally franchisees find that their turnover is just covering the cost of running the business along with on-going fee payments, making them very little profit to live on.

 Look carefully into what you are going to have to pay compared to what you are expecting to earn

 

On the other hand, some franchisees have been able to make a good living wage from their business; you just need to be aware of what you’re getting into financially before you sign any legally binding agreements. 

Also it is important for you to understand what your money is being spent on. Are your on-going fees being put back into the business, through marketing initiatives for example? Alternatively are you paying fees that are going straight into the franchisor’s pockets while you’re getting nothing in return? 

Success isn’t guaranteed

Franchise professionals like to state that franchisees have a higher success rate than independent start-ups, however the statistics this is based on often don’t take into account circumstances behind business failures or whether the franchisees are successful for the first two years but then become unprofitable.

Normally, a business that starts to stagnate doesn’t succeed in the long-term, so find out if there is room for growth with the franchise. Can you buy another store or territory? Can you move to a larger premise?

Additionally, it is important to realise that just because the business model has already been created doesn’t mean it won’t take a lot of hard work and absolute dedication to make the business succeed. It is normal to hear of new franchisees working 12 hours a day, six days a week to make their franchise a success. Can you really put in the hard work needed?

How the BFA works 

The British Franchise Association (BFA) is the main franchise organisation in the UK, although it can offer advice and guidance it has no legal powers. Also keep in mind that just because a franchise has BFA membership it doesn’t ultimately make it the right franchise for you and the BFA won’t take any responsibility if your business fails.

Also keep in mind that just because a franchise doesn’t have BFA membership doesn’t mean you should immediately discount it. Again research is key here, as ultimately your business is your responsibility. 

Is it really the right option for you?

Franchising may seem like the safer option to operating a business, but the realities of being a franchisee might not be the right option for you. As a franchisee you will be expected to follow the business model set out by the franchisor, this can sometimes extend to the layout of stores and even which suppliers you use.

Furthermore, a franchisor can change a business policy, which you will be required to adhere to. Can you really handle this much interference into the way you run your business? 

Written by Derin Clark on behalf of Octopus HR, a company that provides online HR services for business owners. 

About The Author

Derin Clark 
Derin Clark is an experienced writer, editor and blogger with a background in journalism. She has written for a number of business publications and websites, and has written extensively about the franchise industry.