Always dreamed of being a successful franchisee? There are a few things you’ll need to crack if you want to make your dreams a reality. We’ve put together a one-stop guide that will teach you all of the basics you need to know about owning a successful franchise.
There’s so much information out there that promises the key to franchising success. So much that it can feel a bit overwhelming and you’re probably wondering where to start. If you’ve clicked on this article, chances are you’ve asked yourself ‘how do I become a successful franchisee?’ And across the world, from young entrepreneurs to experienced businesspeople, it’s a question that’s on many of our lips.
We’ve compiled expert advice and practical tips covering every aspect of franchising success – from getting started to growing your business to moving on to a new challenge. Bookmark this ultimate guide to success and come back to it whenever you need a few hints and tips.
Is a franchise a legitimate business?
Before we get into more specific franchising information, it’s important to clear up this misconception. Franchising is a wholly legitimate business model, entirely separate from pyramid schemes or MLM (multi-level marketing) companies. 93% of franchise businesses in the UK are running profitable (bfa NatWest survey 2018) and just 1% close due to commercial failure. You can find out more about the history of franchising in our article ‘Franchising 101: How Franchising Began’, but here’s a quick rundown.
>> Read more:
In essence, franchising is a way successful businesses can expand without recruiting area managers and other employees to oversee new territories. A business (or franchisor) that decides to franchise will sell the rights to its business model to entrepreneurs across the world, who become franchisees. The franchisees then get to operate under a popular, respected brand’s name and enjoy the freedom of being their own boss.
A franchisor will set out guidelines they need to stick to (covering everything from branch décor to uniforms to opening hours) but won’t interfere with day-to-day running or staff recruitment. Franchisees aren’t employees, as they don’t get a salary. Instead, they get to keep the profits they make (after paying annual or monthly fees to their franchisor) and aren’t limited to how large they can grow their business.
Of course, as with every industry, there are a tiny number of bad businesses in the franchising world. However, the highly respected bfa (British Franchise Association) was set up by industry titans like KFC and Holiday Inn to steer new franchisees towards good opportunities. Franchising isn’t regulated as an industry by law, so the bfa has become the next best thing. The country’s best franchises are members of the bfa and it’s become an indicator of legitimate opportunities. The newer AFA (Approved Franchise Association) and QFA (Quality Franchise Association) also represent great franchises, but it’s important to do your research before investing in any franchise.
How do I become a franchisee?
Let’s start at the very beginning of your franchise journey. Maybe you’ve just heard the idea of franchising thrown around, and you’re not really sure what to do. Luckily, we’ve put together a series of articles covering the very basics of franchising. Whether you’re wondering what you absolutely must know before diving in (Franchising 101: 6 Things To Know Before Becoming a Franchisee), if you’re ready to start a franchise (Franchising 101: 8 Signs You’re Ready to Start a Franchise) or just want a simple checklist to guide you through the process (Franchising 101: How to Buy a Franchise Business in 10 Steps), we’ve got loads of helpful content for franchising newbies.
How much does a franchise cost?
There’s a franchise out there for every budget. You can choose a low-cost franchise, with a start-up cost from just £1,000, or even find a franchise that offers a 100% funding scheme (meaning no start-up costs). A franchise is a highly affordable route to business ownership, even if you don’t have six-figure savings that you can tap into.
As franchised businesses are generally considered a much lower risk when compared to independent businesses (as you’ll be operating a business concept that has proved it’s viable in at least one other location), most franchisees find it relatively easy to get a business loan. What’s more, most franchises offer highly flexible repayment terms, giving you time to get your business on its feet before you begin paying back your loan.
At the other end of the financial spectrum, there are plenty of franchises for serious investors looking to make big profits. Restaurant franchises like Dunkin’ Donuts, for example, ask that new franchisees invest at least £1.2 million into their new business. They’ll also need significant liquid capital (cash or assets that they can turn into cash easily) on top of the franchise fee.
Generally, the highest franchise fees are commanded by franchises that are national or international household names, like Bella Italia and McDonalds. As these businesses have established a strong reputation across the globe, they often prefer to recruit businesses as franchisees, rather than individuals. It’s a great way for established business moguls to expand their portfolio without the hassle of setting up another independent business. Some franchises are also more expensive as they require you to invest in large premises or specialist equipment, as they’re necessary for the kind of business you’ll be running.
However, there’s no rule that the more you pay, the higher your profit potential is, as low-cost franchises can also offer impressive returns on your modest investment. Often, the reason why they’re so inexpensive is because they can be run from your home on the laptop you already own, or because much of the franchise fee is covered by a funding scheme. You should pick a franchise that genuinely appeals to you and seems to be a great investment (as long as it’s within your budget), rather than seeking out the cheapest or most expensive option.
We’ve broken down the finances in more detail in Franchising 101: The Complete Guide to Franchise Costs in the UK.
How do I grow my franchise?
Most franchises are highly scalable, so you’ll only be limited by your ambitions when it comes to growing your operations. Some franchises can grow exponentially without formal expansion, as you’ll be free to add to your client list as much as you like. If your business expands beyond your capabilities or capacity, you can recruit employees to increase the amount of work you can take on.
As you are the owner of your franchised business, you’ll be free to recruit employees as and when you like and generally won’t need to get permission from your franchisor. However, make sure you’ve checked your franchise agreement before starting the hiring process, as your franchisor may ask that employees have specific qualifications or experience so they can offer a certain standard of service.
>> Read more:
Can I sell my franchise?
If you choose to move onto a new challenge, you can sell your franchised business to a new franchisee. There’s also a big market for franchise resale opportunities in the UK. A franchise resale can actually be a more enticing prospect to some investors, as they won’t have to do the hard work of setting up a business and will enjoy profits virtually straight away. They’re pricier than buying a new franchise, but the cost is justified as it can be a profitable passive investment that you don’t need to manage as closely.
You’ll need to speak to your franchisor first if you decide to sell up, as they may choose to buy the franchise back and make it a company run location. They might also ask that you see out your current franchise term before handing the business over. Most franchisors will have no problem with you selling up and many will also find a buyer for you, to make sure they’re a good fit for the franchise network.
Once again, if you’re looking for more information about selling on your franchise, check out our ‘How and When Can You Resell Your Franchise?’ for a complete walkthrough.
Information at your fingertips
The world of franchising is a fascinating, complex one and we’ve written articles covering everything from crisis management to getting your business through hard times to the best books all business owners should read. And if you’re ready to take the plunge and invest in a franchise, check out our UK franchise directory.
Sophie Cole, Point Franchise ©