The franchising industry is growing, dynamic, and full of opportunities of all kinds. If you’re looking to make an investment, you probably have some questions. Here are the eight most asked questions about franchising, answered.
There are over 48,600 franchise branches in the UK alone, and the sector is only growing with time. There’s no better time to make an investment in the industry, but before you do, you’ll need to know the basics about how it all works. Once you understand what franchising is, and what roles the franchisor and the franchisee respectively play in the process, you’ll be much better placed to find the right investment opportunity for you.
Starting with the basics, this article will lead you through the eight most asked questions about franchising, leaving you in a good position to start seriously considering a franchise investment. Here’s question one...
What is franchising?
This question is more involved than it seems, as franchising can take many different forms. Put simply, franchising is a method by which a brand can expand. A franchisee invests money in a franchise, and the franchisor (originator of the business idea, and the products/services offered by the business) grants them the right to operate under the same brand name.
There are three different kinds of franchise:
- Business format franchise - This is the most common type of franchise system in the UK and can be found in every sector from retail to beauty to coffee shop. Essentially, you buy a business-in-a-box, complete with trademarks, brand assets and ongoing franchisor support, to help you launch and run branded operations for your chosen franchise.
- Management franchise - The franchisee manages a team of people who sell their goods or carry out their services. As franchisee, your job will be to oversee the strategic direction and non customer-facing tasks like marketing and new business acquisition.
- Product distribution franchise - A franchisor will provide products for the franchisor to sell on, in a similar (but distinct) way as a license agreement. It’s the most hands-off option in terms of franchisor support, so it’s best suited to experienced businesspeople looking to buy into a proven concept without any hand-holding.
You can find out more about this topic in our article, ‘The Three Types of Franchise System’. The definition of a franchise in 2021 is complex, but these are the basics you need to know before you move forwards with any kind of investment in the industry.
What's the difference between a franchisor and a franchisee?
The relationship between a franchisor and franchisee is not dissimilar to the relationship of a licensor and licensee. Both are separate parties, with different positions, powers and responsibilities. A franchisor owns the brand while a franchisee operates a location/branch/unit under the name of the brand. You can find out what’s the difference between franchising and brand licensing in our previous article.
The franchisor will always retain the brand trademark, and when the franchisee invests, they will sign a legally binding agreement and be responsible for following all the terms laid out within it. Terms will differ between franchisors, and whether or not the terms feel comfortable to you is one way of determining whether a franchise is or isn’t the right fit.
Who can become a franchisor?
If you own a business and you have the resources to expand that business into a franchise with multiple branches, you can become a franchisor. Here are just a few of the qualities that make for a successful franchisor:
- Honest and communicative
- Successful in the industry
- Full of sector-specific knowledge
- Willing to train, listen and offer support
Who can become a franchisee?
Almost anyone with the financial means can start running a franchise, and the means don’t have to be massive, because many low-cost franchising options are available, and franchise loans covering up to 70% of fees are regularly granted by UK banks. Many franchises also offer extensive training packages, meaning you can transition from being an employee in a completely different sector to a business owner in a matter of weeks.
That said, franchisees will be required to meet certain important criteria regardless of the industry they’re looking to invest in. Successful franchisees are:
- Motivated, with a willingness to work hard
- Filled with a strong drive to succeed
- Willing to learn
- Confident and enthusiastic about the franchise
- Good at learning
- Good at training and managing others
What are the benefits of franchising?
For franchisors, expanding your business into a franchise comes with pros and cons. Overall, it’s a low-risk way to grow your business and expand your revenue potential. If you’re in a position to make it happen, it’s something you should be strongly considering.
For franchisees, running a franchise can be hard work. The job is full of busy days and tough decisions, and it definitely isn’t right for everyone. That said, there are many different benefits to the role. Here are just a few:
1. Flexible working hours
As a franchisee, you’re able to have much more control over where you work, how you work and when you work.
2. Access to a network full of experience
Working in a thriving franchise, your fellow franchisees will be some of the best in their field, giving you the perfect opportunity to learn and grow from their insights and advice.
3. The existing prestige of the brand name
You’ll be one part of a larger, recognised brand, and won’t have to drum up interest for yourself in the same way that you would for a business you created from scratch. Existing prestige will give you an existing customer base.
4. A chance to be your own boss at a lower level of risk
Running your own business is tough, and running a business that you created from scratch comes with a higher level of risk. As a franchisee, you’ll still experience the freedom of being your own boss, but you won’t be anywhere near as liable if something goes wrong higher up in the company.
5. Quality training from experts in the industry
Most well-regarded franchisors offer their franchisees a really high standard of training, catering to a range of different experience levels. This training from industry experts will strengthen your skills and boost your confidence ahead of opening day.
6. Ongoing support and guidance from your franchisor
Even after you’re up and running, you won’t be alone. You’ll have access to ongoing support from your franchisor, who’ll offer advice when it’s required and make regular franchisor visits to your site in order to check in.
>> Read more:
- Franchising 101: The Complete Guide to Franchise Costs in the UK
- Franchising 101: How to Buy a Franchise Business in 10 Steps
- Franchising 101: The Official Franchise Start Up Checklist (Part 1)
- Franchising 101: Top 5 Qualities of a Franchisee
- Franchising 101: 6 Tips for Building Customer Loyalty Through Marketing
- Franchising 101: The Pros and Cons of Franchising Your Business
- Franchising 101: 6 Top Contributors of Franchise Failure
What responsibilities do franchisors have to franchisees, and vice versa?
- Ensure their business concept is financially viable
- Establish a clear marketing plan for franchisees to replicate across the country
- Manage locations and make regular site visits
- Approve franchising applications in appropriate locations which will boost business
- Fully train all franchisees to the correct standard and help them do the same for their employees
- Provide all franchise locations with ongoing support for franchisees and employees
- Strongly consider joining the BFA (British Franchise Association)
Joining the BFA will provide franchisees with the secure knowledge that your franchise follows ethical practices, and has passed a process of accreditation.
- Manage all branch staff, including training, hiring and firing
- Manage all branch finances and accounts, including payroll and bill paying (unless the franchisor handles this for you)
- Sell products and services approved by the franchisor
- Market in a way which has been approved by the franchisor
- Represent a positive public face of the brand
- Honor everything stipulated in the legally binding franchise agreement
- Remain in regular contact with the franchisor
>> Read more:
- Franchising 101: The Official Franchise Start Up Checklist (Part 1)
- Franchising 101: The Official Franchise Start Up Checklist (Part 2)
- New Year, New Career: No Better Time Than Now to Start a Franchise Today
- Franchising 101: 8 Signs You're Ready to Start a Franchise
- Starting a New Business Doesn't Always Lead to Immediate Success: Here Are 5 Ways to Change That
- It's Never Too Late to Start a New Business
How do I choose the right franchise to invest in?
Figure out which franchise investment opportunity is right for you by:
- Doing your research
- Assessing your skills and their suitability to various different industries/opportunities
- Talking to current and former franchisees from industries/franchises that interest you
- Carefully considering costs, and what you can and can’t afford
Can I leave the franchise if things don't pan out?
Yes, but it won’t necessarily be easy or free. When you decide to run a franchise, you sign a legally binding agreement. Most franchises don’t allow you to terminate the contract early, and the minimum term is often five years.
Attempting to leave a contract early would risk you losing your initial fees, set-up costs, and any potential claims for damages. You’ll also likely have some post-termination obligations to fulfill, as per your agreement, like not working for a competing business until a certain period of time is up. Think carefully before you sign on the dotted line.
Are you ready to enter the world of franchising?
Now that you have all the basics in your mind, it’s time to ask yourself whether you’re interested in franchising as a career path. If yes, clue yourself up on how to buy a franchise business in 10 steps. If you have a few more questions that need answers, check out these commonly asked franchising questions to dive deeper.
Cara Squires, Point Franchise ©