Have you always dreamed of being your own boss? Becoming a franchisee is a great way to launch a business whilst having security and support. But it’ll probably be unlike any role you’ve held before, so it pays to go into it with a solid understanding.
According to the BFA-NatWest Franchise Survey, there are currently around 50,000 franchise businesses contributing a total of over £17 billion and 710,000 jobs to our economy. More and more women and adults under 30 are choosing to become franchisees, and awareness of the franchise sector’s benefits is growing.
Here’s what every potential franchisee should know before signing on the dotted line.
Things to know before becoming a franchisee
1. There are franchises for every investor
There’s a huge variety of franchises looking for budding franchisees - and more are putting opportunities on the market every day - so you should be able to find the perfect one for you. It’s worth doing a bit of research, as you’re bound to find one to suit your requirements.
From office-based franchise units to ones you can manage from home, or even from the road as a van-based business, there are plenty of options. Investment costs range from a few thousand pounds to over a million, and you can choose to be a full-time franchisee, or just work part-time hours.
2. It’s hard work
Only seven percent of new franchise units fail within the first three years, compared to 90 percent of new start-ups (whichfranchise) - but successful franchise businesses don’t just spring up overnight. If you’re launching a franchise unit expecting a ready-made, lucrative business, you’ll probably be disappointed.
Franchises give you a helping hand, with the opportunity to start a business under a recognisable brand with an established customer pool. You’ll be able to rely on support in business management and marketing, and you’ll have the chance to mingle with other franchisees to share insight.
But the success of your franchise unit will rely on your hard work and determination. You must be prepared to put time and energy into making your investment pay off - just like with any business.
3. You won’t make a profit straightaway
Overall, 93 percent of UK franchisees report profitability (BFA-NatWest Franchise Survey) - but this isn’t the case for new businesses. Your business plan will have outlined your projected cash flow and breakeven point, taking into account any loans you’ve taken out and repayments you’ll need to make. In the early days, it’s unlikely your income will cover your outgoings.
You’ll need a decent amount of working capital to fund your expenses until the franchise unit reaches its breakeven point. Even after you start making a profit, it’s always a good idea to save a bank of money to protect your business against the ups and downs to come.
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4. You’ll need to spend money on marketing
Most franchisees will have to pay a franchise fee, as well as any set-up costs and ongoing royalties. But you may not realise you could be asked to pay a regular marketing fee too. Usually, this payment is in the form of a percentage of your gross sales, and it’ll cover the franchisor’s nationwide promotional campaigns.
At the same time, you may also need to pay for marketing at a local level to make sure people in your area are engaging with your business. As well as paying for adverts, you could introduce discounts or competitions, sponsor a local sports team or donate prizes to a charity event.
5. It’s worth inspecting the franchise agreement
As the coronavirus pandemic has taught us, life can be unpredictable, but investors can take steps to protect their future businesses by checking their franchise agreement for certain clauses.
Some franchisors may be able to include a force majeure, which changes the franchisee’s obligations in the event of extraordinary circumstances. In the case of another pandemic, for example, investors could, in theory, invoke the force majeure clause and stop paying fees for a certain amount of time.
If the franchisor isn’t prepared to include the force majeure provision, you could protect yourself by choosing to invest in a franchise with percentage-based fees. If your business suffers, your fees will reduce along with your sales revenue - this isn’t the case with royalties set at a given amount.
6. You’re the boss - but only to a certain extent
The appeal of becoming a franchisee is the chance to be your own boss with less of the risk associated with setting up a business. Although you’ll be responsible for the success of your unit, you’ll also be accountable to someone else. The franchisor has ultimate control over the brand, but you oversee the day-to-day running of the business. It’s a middle ground some entrepreneurs may find difficult to navigate.
At its core, the franchise model is based on conformity, not freedom. When you become a franchisee, you’ll be expected to follow the rules laid down by the franchisor. If you’ve got a strong entrepreneurial spirit and like to run things your way, franchising may not be right for you.
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7. The agreement has an expiry date
Becoming a franchisee is life-changing - but you should remember you’re buying the right to use a brand name and system for a set number of years. You need to work hard to make your franchise business a success, but you should also be prepared for when your agreement comes to an end. If you want to continue running your franchise, you’ll need to pay a renewal fee and sign a new franchise agreement, which is likely to have new terms and conditions.
Also, the vast majority of franchise businesses are successful, but it’s worth bearing in mind the possibilities, should things take a turn for the worst. Here’s what happens when a franchisor goes out of business.
8. Have a business plan
As Benjamin Franklin once said, ‘If you fail to plan, you are planning to fail’, and this is true with franchising. Developing a business plan is incredibly important.
If you’ve never had to write a business plan, the thought of putting one together can be daunting, but it doesn’t have to be. There are a range of templates, guides and tips on the internet explaining how to create a business plan to give your new franchise the best possible chance of success.
As you grow your franchise unit over time, you should regularly return to your business plan and adapt it whenever it needs updating.
9. There’s a lot of research involved
Before becoming a franchisee, you’ll need to research the industry and the available investment options in great depth. Otherwise, how can you be sure the market is stable and ready to welcome your product or service in your area?
Even when your franchise business has been active for a while, you still need to keep learning as much as you can about the state of the industry. You should keep an eye on emerging trends or any challenges facing the sector in order to best prepare yourself for the future.
Ready to become a franchisee?
Hopefully, these franchisee tips will help you make an informed decision as you take your next steps. Becoming a franchisee is different to launching an independent business, but it can offer incredible benefits; just take a look at these five great reasons to join a franchise.
For more useful resources and franchising information, browse our business guides. Or use the menu to explore the franchise opportunities available in each sector.
Alice Tuffery, Point Franchise ©