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
- 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
- How much time you have to put into the business.
Talk to the seller about whether you'll be working weekends and
- 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
- 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
- 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.
- 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
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
Turnkey operation: a package put together by the
franchisor that includes all the set-up costs for the business.
What is the average price for buying a
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).
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
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