5 critical questions to answer before taking on a franchise

Found your ideal franchise? Answer these questions to discover if it’s right for you

Becoming a franchisee is an attractive option for those who dream about starting and running their own business but put off by the risks. With a franchise, you have a tried and tested business model, a designated customer base and training and support network from day one.

According to the British Franchise Association (BFA) franchising is a growing industry: ‘…that 20 years ago had a turnover of just over £5 billion, had 379 different brands and represented 18,300 franchised outlets’.

Today there are 901 franchise brands operating in the UK and a total of 44,200 franchise outlets, employing 621 000 staff - with 92 per cent of them profitable and an annual industry turnover of £15.1bn.

First and foremost, do you understand the franchise model?

With the simple premise that a business is started and then replicated, franchising is a business model that enables people to make the most of a proven successful enterprise.

The person that started the initial business doesn’t necessarily want to spend all their money on growing it. Instead they become a franchisor and look for investors to buy and run the business as a franchise.

Will it suit you?

Being a franchise owner is a great step into business but it isn’t for everyone. Conduct a self-assessment to establish what kind of franchise would best suit you.

Look at your qualifications, skills and relevant experience; using these will make the selection process a lot easier and give you a higher chance of success in the long run. Compile a list of potential franchise options and organise them in relation to your strengths.

What are the rules?

Before you take on any franchise make sure that you are aware of the franchisor’s specific rules and regulations. These directives are set in place to maintain the consistency of the brand, their products and the service that the customer receives (think of it like a duplicate of the original business).

Franchise owners often enjoy the perks of being their own boss, but there are limitations. In most circumstances the franchisees are legally obligated to abide by the brand’s processes and guidelines.

This can be anything from marketing, accounting, and workforce regulations down to shop-front décor and hiring practices. If you’re not willing to follow the rules, owning a franchise might not be for you.

How much of an investment will you be required to make?

As with any business purchase, investing in a franchise will require a healthy upfront investment and some ongoing payments. However, the franchise fee will often cover the majority of the start-up costs.

Don’t forget that you will also be responsible for taxes, insurance, salaries, marketing and advertising – so make sure that you build it into your budget.

Make an accurate reading of your own investment capital and assets to make a realistic estimate of what you l will need to spend. You can also estimate your investment costs by matching the amount of funding you will require with your projected returns.

Have you done enough research?

Make sure that you research the business that you are buying into. Talk to other franchisees as they were all in your position at some point. Franchises should offer a support network of franchisors, franchisees, training systems and managers – so make sure your chosen one has healthy communication between all involved.

Market research is key to investing in a franchise, look at the history of the business to give you a better insight, find out where the money is being invested and whether the returns are satisfying (but don’t just focus on the profits and success stories – the failure rate and pitfalls are just as important).

Make sure that you assess the local supply and demand. Look at the market, is it growing or in decline? Who are your potential competitors? Understanding your customers and their environment will inevitably help to determine the viability and profitability of your franchise.

Franchises often use a template contract and the terms of the agreement are non-negotiable. As a due diligence measure, prospective franchisees should always ask for clarification if they are unsure about any points of the agreement.

Still interested in buying a franchise? Take a look at our listings and find the right opportunity for you.

Melanie Luff

About the author

Mel wrote for all titles in the Dynamis stable including BusinessesForSale.com, FranchiseSales.com and PropertySales.com as well as other global industry publications.