Buying a franchise

Opening up as a franchise enables you to buy into a ready-made brand, usually with a trade mark and successful format, which could improve your chances of success. The five-year survival rate for new franchises is said to be 15 per cent higher than for other start-ups.

Business format franchising is most common. More widely recognised examples include Pizza Hut, Subway and KFC. Basically, the franchisor licenses established (and usually trademarked) products and services to the franchisee.

Key advantages of franchising

Buying a franchise means you needn’t think of an original business idea and start up completely from scratch. Instead you benefit from the reputation, experience and expertise of an established enterprise.

For financial and reputation reasons, franchisors want their franchisees to succeed, which is why they provide support through training, product development, marketing, advertising and management services.

Franchisees usually enjoy exclusive rights within their territory, while banks can be more willing to lend to those seeking to buy into a reputable franchise.

Disadvantages of franchising

Buying into a successful franchise is expensive. Franchisees pay the franchisor an initial fee up front and an ongoing fee thereafter (sometimes a percentage of turnover). Fees can be concealed within mark-up on supplies, which must be bought from the franchisor. Higher-profile franchises charge considerably more.

The franchisee owns and operates the business, and so largely retains control over day-to-day management. However, the franchisor usually controls marketing and sale of products and services – including key decisions about range and price. The franchisee cannot introduce new lines or sales as and when they like.

Also on the downside, there’s a risk the franchisor might go out of business or impose significant changes (for example, a new brand identity), which can be expensive and disruptive. Potentially, the failings of other related franchisees could impact negatively on your reputation, while your options could be limited by the franchisor should you wish to sell up.

Is franchising for you?

If you’re highly ambitious and like to retain full control, a franchise might not be for you. However, the franchisee’s role doesn’t have to be passive or devoid of challenge or satisfaction. They still need to bring energy, commitment, passion and pride to the business. Although the workload might be just as challenging as starting from scratch, many franchises don’t offer the prospect of earning a vast fortune, but a steady return on investment. 

And although franchises can fail just as any other business, if you’re not comfortable with risk, buying a franchise could provide more acceptable odds.

If you’re interested in becoming a franchisee, carefully consider all opportunities before parting with any money – and seek professional guidance before you sign up.