Is buying a franchise right for me?
Franchising can offer some big benefits and is often lower risk
than starting from scratch - but it's not for everybody. Check out
the pros and cons below to help figure out which path is the right
one for you.
Who suits franchising?
- Franchising can be a great option if you know you want to run
your own business but you don't have a business
idea.
- It's also good for first-time business owners, as
it offers support and training and for many networks you don't need
any prior experience. Starting up solo can be much more daunting as
it requires skills in every single area, from accounting to PR to
sales.
- It can also be a better option if you don't have much of
your own money to put into a business, as you're usually
more likely to secure bank finance than you would if you were
starting from scratch.
- But franchising isn't just for first-timers. It can also be a
great opportunity for more experienced businesspeople to make
profit in a relatively secure set-up, providing the
possibility of fast growth without all the risk involved with
starting up.
- It's also a strong option if you want to get a business
up and running quickly, as you can simply follow templates
and already-tested working methods rather than spending months
trying out different ideas and floundering about trying to get
everything in place.
- It's a good way of getting into a sector you have no
experience in, as your franchisor will give you training
rather than you entering it with no knowledge and resultantly
risking failure.
The advantages of buying a franchise
- Franchises are lower risk than startups. The
business model has been tried and tested. 90% of franchises are
still trading profitably despite the recession.
- It's usually easier to secure funding than with a
start-up. A good franchisor will help you, and banks are more
likely to lend to a franchise than a start-up because the business
model is proven and has a history.
- You don't need to come up with a new idea or spend months
researching it and testing, only to find at the end you
can't get a patent or it's not commercially viable.
- Support, both from the franchisor and sometimes
from other franchisees in your franchise network too. The amount of
guidance a franchisor provides will be laid out in your contract.
Look into it before deciding which franchise operation to join as
it can make a big difference.
- Training is almost always provided by the
franchisor.
- The business is close to ready-made. If you pick
wisely, you won't have to worry about figuring out how to sell,
brand, operate, design your store and so on, because your
franchisor will have tried-and-tested models for you to follow. You
can pick a franchise system that gives you more freedom if you want
more independence in these areas.
- You gain access to an already-established brand
rather than having to spend loads of money on market research
and loads of time on building reputation and awareness and
identity.
- Sometimes your premises comes as part of the franchise
agreement so you don't have to spend months sorting that out
either.
- Big franchise operations usually do most of the
advertising and marketing for you, or at least for your
brand.
- Franchisors often give their franchisees access to
cheaper suppliers, which saves you times, hassle and
money.
- Some franchise operations encourage staff loyalty as the brand
is well-known and loved. (Although certainly not all of them - not
that many people enjoy their first job deep-frying chips in
McDonald's, however much they might like the food!)
The disadvantages of buying a franchise
- It can feel limiting. You have to adhere to the
franchisor's terms and meet their standards. (If you think this
could be an issue but know you want to run a franchise, pick an
operation where you get as much freedom as possible.)
- It may be frustrating to not have complete authority over the
services and products sold within a franchise, since it must all be
agreed by the franchisor.
- For that reason, it's not suited to people with loads of
business ideas who like doing things their own way.
- It can be costly. You have to buy the rights to
the franchise, which on average costs £15,000. But new franchisees
are likely to need to borrow an average of £68,300 in total for
initial investment, as you need to buy equipment, premises and so
on. With a start-up you may feel more able to bootstrap.
- You usually have to give a share of profits to the
franchisor or pay an annual fee.
- If the brand gets tarnished by other franchisees, there's
nothing you can do about it.
- You're also vulnerable to the state of the franchise
operation as a whole.
FAQ
Is franchising always a safe bet?
92% of business start-ups using a business format franchise system
are likely to succeed, compared with 50% of all the start-up
business stock. But big franchise operations are not exempt from
problems. Your success is dependent on how well you maintain the
franchise. And because authority remains with the franchisor, you
may be forced to sell at some point down the line (though this is a
worst-case scenario).
Jargon Buster
Franchisor: A company that licenses their trade
name to another person or party.
Franchisee: The persons or business who have paid to
trade under the trade name of the franchisor.
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.
To find out more about how NatWest can help with
franchising, click here- or call 0800 092
9117.
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