How to buy a business franchise

Buying a franchise is not like buying other types of business. You need to go through an interview process so the franchisor can make sure you're right for the network and the brand. But it does offer some big advantages over the normal purchasing process. Use this guide to find out how to do it.

How can I find a franchise?

  • The British Franchise Association (BFA) lists all its franchise members (and has plenty of advice on how to select a franchise). They've all met certain standards so are a safe starting point.
  • Franchise directories (which will include non-BFA members). (See more in Resources below.)
  • Websites such as www.the-franchise-shop.com. (See more in Resources below.)
  • Various franchise exhibitions take place around the country, such as the The National Franchise Exhibition. (See more in Resources below.)
  • Franchise magazines, such as The Franchise Magazine. (See more in Resources below.)

What kind of franchise will suit me?

Consider all the following:

  • Personal interests.
  • Employment experience. You don't have to have worked in the same sector as the franchise is in, but you need to make sure you managerial, accountancy marketing and other required skills are going to be good enough. Some franchise operations are easier to run than others, so pick carefully and speak to the seller for more guidance.
  • What you can afford. Look closely at what the price entails, as you may be loaded with premises, equipment or stock costs on top of the initial fee. Talk to the seller to find out more. Figure out how much you're prepared to borrow from a bank and whether the profits the franchise is predicted to make meet repayments with enough leftover to support you and anyone dependent on you.
  • How much time you have to put into the business. Talk to the seller about whether you'll be working weekends and late nights.
  • How much support is on offer from the franchisor, compared with how much you think you'll need.
  • How much freedom you get with the franchise, compared with how much you want in how you run the business.
  • A 'turnkey operation' is the most straightforward option as all set-up costs and lease negotiations are handled by the franchisor. The franchisee knows exactly what they need to spend from the outset and can turn up ready to start business straight away.

How do I buy a franchise?

  • Start with a shortlist of several franchises you like the sound of and can afford to research further.
  • Research the franchisors. What's their background? What's the success rate of other franchisees? Have other franchisees stayed in the operation or left quickly? What are their profits like? Is that enough to support you?
  • Research the market you're getting into. Is it growing and what's the demand like in your area?
  • Research your funding options. RBS and NatWest have launched a £1m franchise fund. Could you be eligible?
  • Make sure you have all the skills asked for in the application.
  • You don't just buy a franchise outright - you have to go through a selection process, akin to a job interview. (No surprise really, as you'll be representing the franchisor's brand.) Be prepared for this when you've made a choice about what franchise operation you want to join - and remember you have the rest of your shortlist if you're unsuccessful.
    • The intensity of the selection process should give you an idea of the success rate expected from you and the credibility of the franchisor. Be suspicious of anyone willing to hand over their brand to you without properly assessing your capabilities first.
    • Conversely, a franchisor undertaking a thorough selection process with numerous interviews is taking the opportunity to select a franchisee they really like and trust, which speak highly of the way they run their business.
    • If you're successful you need to carry out due diligence and get professional advice from solicitors, surveyors and accountants before making any payments to make sure the business is sound.
    • When you pay, there is usually an initial 'finance fee' that pays for the licensing agreement and the costs of training. There are the on-going management service fees, often dependent on annual turnover. Make sure you know all the costs involved before committing.

Checklist

  • Make a shortlist of franchises you're interested in
  • Research the franchisors and market
  • Pick the one that suits you best
  • Research other franchisees in the network to make sure it earns enough and is reputable
  • Confirm it's reputable with the BFA
  • Get the full run-down of costs from the seller
  • Make sure you have the finances needed to buy and run it
  • Talk to your bank if necessary, before applying
  • Approach the company and start the selection process
  • Agree costs, ongoing payments and type of franchise set up including what the franchisee has authority over
  • Carry out due diligence and advise solicitor, surveyor and accountant before making any payment

Jargon Buster

Franchisor: a company that agrees to license their trade name to another person or party.

Franchisee: the persons or party who have paid to trade under the trade name of the franchisor.

Finance fee
: the fee paid just the privilege of trading under the franchisor's trade name. It does not refer to all costs involved.

Turnkey operation
:  a package put together by the franchisor that includes all the set-up costs for the business.

FAQ

What is the average price for buying a franchise?
Purchase costs alone are on average £15,000. But new franchisees need an average of £50,400 for everything needed to open (including premises, equipment, stock, and so on).

Resources

Smarta Business Builder has everything you need to start and manage a business in one place.

NatWest has the longest established dedicated Franchise department of the banks and recently launched a £100m Franchise Fund in order to help boost the sector. This fund is endorsed by the British Franchise Association and is aimed at people looking to start up a franchise.

You can find out more by visiting www.natwest.co.uk/franchising, www.rbs.co.uk/franchising or telephone 0800 092 9117.

Smarta Business Builder

To help you on your business journey, we've created Smarta Business Builder, the complete online tools package for growing your business. Website Builder, Business Plans, Accounting Software, Legal Documents and Email - all in one place - from just £20 per month with no contract! Try it out today.