Worried about being tied to your franchise for life if you invest? While it’s an excellent way to build a business that sees you through to retirement, franchising doesn’t have to mean forever. In this article, we’re going to answer the question ‘is franchising a long-term commitment’ and debunk the myth that a franchise has to be a lifetime endeavour.
One of the most rewarding things about a franchise is being able to grow a business of your own that could pass down through the generations. It’s exciting for some franchisees to picture a future that only involves their franchise, as they can slowly build their venture into something for the whole family.
Some entrepreneurs, however, don’t like to be tied down for too long. Devoting their experience and creativity to a different project every few years suits them better; it makes sure their working life stays fresh and keeps ambition and drive high so every venture is as successful as possible.
If you’re one of these fleet-footed businesspeople, here’s why you shouldn’t believe the rumours that you’re tied to a franchise investment for life.
Short-term franchise investment
Franchise agreements will differ from business to business. John Pratt, senior partner at Hamilton & Pratt, suggests five years is the most common length for an initial agreement, and that you should ask more questions if the term is much shorter than this. But there are no hard and fast rules about the length of a franchise agreement. Your franchisor could ask you to commit for 10 years, or ask franchisees to renew their agreement every year based on performance.
Many franchisees choose to invest in their chosen business for life. Take ChipsAway franchisee Steve Giles, for example. He has been running a successful SMART auto repair business since 1994 and renewed his franchise agreement for another five years in 2020, which will take him to an incredible 31 years as a franchisee.
But Steve is just one example. How long you spend building your franchise up before moving onto pastures new is completely up to you.
Franchise resale market
Let’s say you like the sound of building and running a profitable franchise for a few years. You’re probably wondering what you’re going to do with it once you’re ready to move on ‒ after all, you can’t just pop a franchise on eBay.
Luckily, the franchise resale market is booming. The last bfa/NatWest franchise survey found that 70% of franchises acquired between 2016-18 were franchise resales, showing there’s plenty of investor appetite for franchises with a ready-made customer base and plenty of profit potential.
What’s more, a ready-made franchise will command a premium price, as many investors are willing to pay more for a business-in-a-box that has passed its tricky setting up stage. Research suggests that franchise resales can cost up to 30% more than new franchise agreements and there are hundreds on the market at any one time.
And if the thought of finding a buyer sounds daunting, there are plenty of experts out there who can guide you through the process. A franchise or business brokerage will help you find the ideal buyer, and the best possible price, for the business you’ve worked so hard to build up.
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How to run a short-term franchise
Like the sound of building up and selling on a successful franchise? There are a few things to consider before you take the plunge and invest in a shiny new business.
1. Understand when you’ll begin turning a profit
Some franchises aren’t well suited to short-term investment and will not give you a chance to add value to your business within your planned time frame. For example, some high-cost fast food franchises (like McDonalds) ask investors to contribute seven figure sums when starting their business, and generally ask franchisees to commit to longer franchise agreement terms (typically 10+ years).
To make sure you’re going to be getting your money’s worth, it’s vitally important to do some financial digging before signing on any franchise’s dotted line. If the average franchisee of your chosen franchise takes six years to build the six or seven-figure turnover you’re aiming for, the opportunity probably isn’t well suited to your goals. If you need more advice on understanding how long it will take for your franchise to turn a profit, you can read more in our previous article.
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2. Be upfront with the franchisor
It’s best to be honest with any potential franchisor about your intentions for your franchise. While it shouldn’t be a problem if you’ve already decided you don’t want to extend your franchise agreement after it expires, some franchisors may prefer to team up with franchisees that are in it for the long-haul. If a franchise is seeking a brand guardian who is happy to form a lifelong partnership, it’s probably not right for you.
Being upfront with your franchisor about your goals could actually benefit you. Franchises with central marketing and new lead generation services could make sure to direct plenty of clients your way to help you quickly reach your goals. This could take pressure off other franchisees who prioritise their work/life balance more than generating money quickly.
3. Give it plenty of time and attention
Building and running a successful business over a shorter period of time will require serious commitment. If you’re looking to achieve results most franchisees take a decade to see in just a few years, it’s vital you’re willing to put in the hours.
Many franchises are designed to help novice business owners ease themselves into running a business, letting them take on as many or as few clients as they like. As a result, many franchisees take a little while to hit their profitable stride as they get used to the challenges of business ownership.
Franchisees who are seeking a short term investment can’t afford to coast along. It’s important to begin chasing leads and ensuring a steady flow of customers are coming your way straight away. For this reason, short-term investing may be better suited to experienced professionals who understand the fundamentals of setting up and propelling a business to success. If you’re a first-timer in the franchising world, a slow and steady approach is likely going to yield better results.
Investing in a franchise
As you can see, franchising doesn’t need to be a lifelong endeavour. There’s plenty of flexibility around how long you choose to run your business for, whether you see your franchise as something to pass on to the grandkids or an exciting project where you see how much you can do in a set period of time.
Need more franchising advice? Check out our articles for more handy hints and tips, as well as insightful analysis of the franchising sector in the UK.
Sophie Cole, Point Franchise ©