6 Tips for Starting a Franchise in the UK

More people than ever are looking to start a franchise here in the UK and the sector has experienced a boom over the last decade. Research conducted by the bfa (British Franchise Association) and NatWest has found that there are now almost 50,000 franchised businesses operating in the UK, contributing more than £17 billion to the UK economy every year. More than 90 percent of franchisees reported profitability too, showing the industry offers entrepreneurs plenty of chances to make their fortune.

However, it can be tricky to know where to start when thinking about buying a franchise. You’ll need to consider everything from the franchise agreement to the profit potential of your chosen opportunity before taking the plunge. Luckily, we’ve got all the tips you need to make the right decision and take the first step towards starting your very own franchised business.

Do your own research

Make sure that your budget and values match the requirements of the franchise. You can talk to potential business partners at events such as the British Franchise Exhibition, the National Franchise Exhibition and Franchise Opportunities Live to get a better sense of what is out there. You could also seek out more information on the British Franchise Association’s website.

However, even once you’ve done this, that’s not where your research should stop. Keen to know more, you approach the franchisor and are offered plenty of exciting information which makes the franchise look like the ideal business for you. But, before you hand over your hard-earned cash without a backward glance, it’s sensible to do your own independent research to back up the claims that your potential franchisor is making.

Speak to existing franchisees about what it’s really like to be part of your chosen company’s franchise network. You might find that the opportunity has more problems in real life than on paper, or you might discover that it’s not one best suited to your lifestyle, skills or financial aspirations. If you can’t meet any face to face, head online to find as much information as you can from other franchisees. Even if they operate in different countries, it’s likely to give you a good idea of what the franchise is like.

You’ll also need to look at whether the franchise model is compatible with your outlook and working style. If you’re are a strong-willed person, you may find it difficult to work underneath a franchisor who ultimately controls your business.

Book your place at a Discovery Day

Most franchises will run discovery days for prospective business partners to get a better feel for the company and meet the people who run it. You should arrive having thoroughly researched the opportunity and prepared questions to ask. Many discovery days will allocate time to discuss the franchise agreement in detail, so you should find out exactly what the franchise requires of you and offers you in return.

You could even ask about the particulars of the set-up process, such as territory, funding, training or recruitment. Don’t pass up the opportunity to meet the company’s leadership team in person, as Entrepreneur magazine says this is a great chance to discover potential problems with the franchise from the top down, explaining:

“When you're talking to franchisors, keep a sharp eye out for potential problems, from weak managerial skills to outright scams. Be sure to look at the resume of the franchisor's top management, as often the people making the decisions have never owned a small business before.”

Location is key

Depending on the type of business they operate, some franchisors will be able to allocate exclusive territories to individual franchisees. This is often the case for businesses in the transportation or delivery sectors, or for other businesses that visit clients or customers in their home or workplace, such as home care businesses.

However, franchisees might be left to find their own location, or, in particularly successful franchises, the franchisor may be unable to offer an exclusive territory, which means that the franchisee must work alongside a nearby franchised unit.

For static businesses like restaurants or shops, location is key, and – if franchisors don’t offer support with site selection – franchisees should seek out a site which benefits from a high customer footfall, like a high street or shopping centre. This will, of course, need approval from the franchisor, but if you’ve chosen a site that’s well placed and suitable for the business, it’s likely to be given the thumbs up.

Secure your funding

Lots of people who are investing in a franchise can’t afford to cover the entire investment cost upfront, particularly if it’s a six figure sum. Luckily, many lenders are willing to offer up to 70 percent of the total investment cost, but this relies on having a robust business plan that shows you’re going to be a reliable franchisee. You will also need a clear financial history, so securing a business loan is unlikely if you have CCJs, a poor credit score or a previous bankruptcy to your name.
Many established franchises have developed a list of approved partners for the benefit of new franchisees, but you could also approach other lenders. Lots of lenders are accustomed to supporting franchisees and can provide valuable advice if further funding is needed in the future.

Read the franchise agreement … then read it again!

When you’ve met your franchisor, found out everything you need to know about the business and are finally asked to sign on the dotted line, this is a crucial time to make sure you’re 100 percent sold on every single aspect of the business. Go through the franchise agreement with a fine tooth comb and pick out anything that you’re unsure of, don’t agree with or simply want to know more about.

Now is the time to highlight anything you’re even the tiniest bit concerned about, so that it can be ironed out or clarified before you’re bound to the franchise. The franchise agreement is a legal document and once you’ve put your name to it, you can’t go back.

It’s wise to go through the agreement with a specialist franchise solicitor who is familiar with the intricacies of the franchise process. They will be able to alert you to any suspicious elements of the agreement and make sure it meets the British Franchise Association Code of Ethics.

This step should never be skipped, as once you’ve signed and are legally bound to the franchise, it can be very difficult and costly to get out of the agreement. If there is anything that you fundamentally disagree with, the franchise is likely not the one for you and it’s time to go back to the drawing board.

Seek out professional help

Getting a second opinion from a lawyer, accountant or other kind of qualified franchise professional can be really helpful when you’re looking into buying a franchise. Look for a professional who specialises in the world of franchising, as they’ll be very familiar with all of the red flags to watch out for and things that must be present in a good franchise agreement. However, Forbes quotes franchise professional Sean Kelly, who advises that you should watch out for so called ‘franchise consultants’ who may do more harm that good. He explains:

“Most franchise consultants are paid salespeople. Consultants want to get you signed onto a franchise deal as quickly as possible, because their cut is often half of the franchise fee.”

The bfa has a directory of approved franchise professionals, so make sure you check out their website if you’re looking for an experienced and trustworthy second opinion before taking the plunge.

Starting a franchise: the key takeaways

So, let’s summarise our key tips for buying a franchise right here in the UK. You’ll need to

• Read the franchise agreement in very close detail.
• Think about if investing in a franchise is a good fit for your personality and working style.
• Speak to previous franchisees about their experience running a franchise with your chosen business.
• Work out if running your own business through franchising is the best option for you – would you be better looking at starting your own independent venture or would the guidance and structure of a franchise suit you?
• Find a great location for your business, or work with your franchisor to find one.
• Secure your funding through your franchise’s lending partners or a bank.

Get a helping hand from a legal or franchise professional before signing on the dotted line.
If you’re still unsure and want to read more about the world of franchising, check out our wide range of articles right here. We’ve written about everything from pet franchises to car franchises and offer advice for those entering the world of franchising with a low cost franchise, as well as to those who have more cash to splash on our franchises over £200k.

Sophie Cole, Point Franchise ©