Becoming a Franchisee: 8 Things You Must Know Before Getting Started

For many, buying a franchise is the accomplishment of a lifelong dream to be the boss. And while it’s true that there are many benefits when you become a franchisee, it’s very different to any job you’ll have previously held. As a franchisee, you’ll need to take on several different roles all at once to build and maintain a profitable business. Today, we are going to look at the current state of the franchising industry and consider eight things you must know before becoming a franchisee.

According to the British Franchise Association/NatWest Franchise Survey 2018, there are currently around 50,000 franchise businesses that together contribute more than £17 billion and 710,000 jobs to our economy. Much of the growth in the industry is attributed to the surge of female entrepreneurs and those under 30 choosing to invest into a franchise. So, with the industry experiencing steady growth in terms of turnover generated (up £2.3 billion), number of people employed (up 89,000) and number of franchised units (up 4,400) since 2015, why wait?

Becoming a franchisee: 8 things you must know before getting started

Here are eight things that all first-time franchisees should know before they sign the franchise agreement:

1. It’s hard work

Despite there being the impressive statistic that only seven percent of new franchise owners fail within the first three years in comparison to 90 percent of new start-ups (whichfranchise), successful franchises don’t just happen overnight. If you’re buying a franchise expecting a ready-made, lucrative business, then you’re likely to be disappointed.

Obviously, when you become a franchisee with a recognised brand name, customers will have an awareness of the products or service you’ll be offering. But this doesn’t mean that from the moment you open your doors, they’ll come running in. This is even more true of lesser known franchise brands.

You need to be driven, determined and motivated to run a franchise. You must be prepared to put time and energy into making your investment pay off. Just like any business, you’ll need to work hard to make it a success.

2. It’s unlikely that you’ll make a profit straightaway

It’s been found that 93 percent of UK franchisees report profitability (the British Franchise Association/ Natwest Franchise Survey 2018), but this isn’t always the case straightaway. This shouldn’t come as a surprise if you’ve had to approach the bank to fund your franchise venture. Your business plan will have outlined your projected cash flow and breakeven point, so you should be under no illusions about when you’ll start to make a profit.

Despite this, some new franchisees assume that because they see money coming into the business, they’re making a profit. It’s worth remembering that not only will outgoings need to be paid but, in the early days, the money made may not be enough to cover this amount.

Working capital will be needed to fund business expenses until your franchise is able to fully fund itself. An element of working capital may also be needed to guide your business through its ups and downs even when it is established.

3. You’ll need to promote your franchise

Buying a franchise costs more than just the franchise fee. There are ongoing fees to consider as well, which usually include a contribution to a marketing fund. This amount tends to be a percentage of gross sales and is paid to the franchisor regularly to cover nationwide marketing campaigns.

This level of exposure is great for your new franchise, but as the marketing is at a brand level, it doesn’t raise awareness of your business locally.

To become one of the successful franchises, you’ll still have to spend significant time and money promoting your business at a local level. Local promotions can consist of discounts or competitions, sponsorship of a sports team in your area or donating prizes to a fete.

4. You’re the boss sometimes, but not all the time

The appeal of franchising is the chance to become your own boss with less of the risk. And although you’re in charge for much of the time, you’re also accountable to someone else. The franchisor has the ultimate control, yet you have the responsibility of the day-to-day running of the business. It’s a middle ground that some entrepreneurs may find difficult.

In truth, successful franchises are built on conformity, not freedom. When you become a franchisee, you must understand that you’ll be expected to follow the rules laid down by the franchisor. If you’ve got a strong entrepreneurial spirit with a desire to run things your way, then an independent business may be more suited to your personality than a franchise.

5. Remember, you’re buying a franchise, not a business

When you start your own franchise business, it’s exciting and life changing. But it must be remembered that you’re buying the right to use the franchise name and system for a set number of years, not the business in its totality.

You need to work hard to make your franchise business a success, but you must also be prepared for when the franchise agreement comes to an end. If you want to continue running your franchise, then you must expect to pay a renewal fee and sign a new franchise agreement, which is likely to have new terms. You might also be interested in what happens when a franchisor goes out of business.

6. Choose the right franchise

If you love what you do, you’re more likely to be successful at it. This is the same in the world of franchising. If you’re passionate about an industry or business and your skills match those required for the franchise, it’s probably the one for you.

Self-evaluate what you want and why you are starting a franchise in the first place. Is your priority having a more flexible lifestyle or being pushed out your comfort zone? Research each opportunity in detail and always remember what your reasons for becoming a franchisee are.

Be mindful not to fall into the trap of only choosing a franchise because you love it though. You should also ensure that your skills and talents are aligned with the franchise. Through your due diligence, you should also make sure that the culture of the franchise is one that you can work within. For more information regarding how to choose the right franchise, you can see another one of our articles here.

7. Have a business plan

As Benjamin Franklin famously once said, ‘If you fail to plan, you are planning to fail’, and this couldn’t resonate anymore with franchising. 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 plenty of templates, guides and tips for how to create a business plan to give your new franchise the best possible chance of succeeding. Learn more about the importance of a business plan for franchisees in another one of our articles.

A business plan is so much more than simply a method of securing funding for your franchise. It’s also a valuable way to record your understanding of how your business will work. A well written plan will enable you to track your progress over time and can be used to recruit quality employees in the future by sharing your vision for the franchise.

You should consider the business plan to be a living and breathing document that is constantly adapted whenever there are any updates.

8. There is a lot of research involved

You will need to research the industry in great depth before you sign the agreement. Otherwise, how can you be sure that it’s the right time, that the market is stable or that your product or service is in demand in that area? Franchisors will also want to see that you are passionate about their franchise, and therefore the industry it operates in.

Even when your franchise has been active for a while, you still need to keep learning as much as you can about the state of the market. Keep an eye on emerging trends or any fads that you can capitalise on. For example, in the beauty industry, microblading is a relatively new trend that customers are going crazy for. For this reason, many beauty salon franchises now offer the service.

Is becoming a franchisee for me?

By now, you should feel more confident about what you should expect and remember when becoming a franchisee.

According to Pip Wilkins, the CEO of the BFA: “Franchising now covers a huge range of businesses, from hair care to healthcare, but is still to reach anything like the levels seen in the US, for example. With so many younger people now entering the sector, the future is in good hands.”

If you want to become your own franchise success story and play a part in the UK giving the US a run for its money, we have plenty of opportunities you can browse. These include low-cost franchises and those that cost over £200,000.

Becky Martin, Point Franchise ©