Have you ever dreamt of being your own boss? How about owning a franchise? Franchises have many benefits, not least the opportunity to launch a proven business concept with everything already in place. Lower failure rates, the opportunity to be part of a broader network, and support from a franchise owner who has been there and done it make franchising an attractive proposition for many.
It's no surprise that the number of franchise businesses in Great Britain alone is on the rise. According to The British Franchise Association and the leading UK bank NatWest, there were 50,000 franchises contributing £17 billion to the UK economy in 2020. Franchising is not a bit- part player either. According to the UK’s Office of National Statistics, no less than 710,000 people are employed in the franchise sector.
With that said, becoming a franchisee is still an investment and there are some things that must be considered before purchasing one. Read on to learn how to become a franchisee.
1. Choose the right franchise
The world of franchising is vast. There are many hundreds of franchises to choose from so it is hard not to get overwhelmed with the options. However, despite such a large number there are predominantly two types of franchise: retail or services, so your first step might be to decide which one you’re most interested in. Retail franchise examples are restaurants, hotels or store concessions, whereas services franchises can involve coaching, wine tasting, or even personal care. Choosing between these two categories will be down to personal preference and potential returns, but there are other factors to consider. Consider exactly how your personal interests and skill sets combine. Becoming a franchisee is the same as owning any business - there should be an underlying motivation for it in order to help the business succeed. For example food service businesses may require specific skills (or an inherent interest) in cooking while IT specialist franchises might also need specific technical know-how.2. Understand the relationship between franchisee and franchisor
Just having ready access to capital and an underlying passion or interest for the industry unfortunately doesn’t guarantee you will secure the franchise you are looking for. Good franchisors will be evaluating you, just like you are evaluating them. Can you be trusted to follow their system? Are you going to reflect well on their brand? Are you in it for a long haul (or at the very least the period contemplated by the franchise agreement)? Franchises are awarded, not given, so it’s helpful to remember that a good working relationship still needs to coexist between the franchisee and the franchise owner.3. Undertake financial planning
Once you have chosen your franchise type, the next consideration is the actual financial commitment involved in setting up your franchise. In the UK as an example, costs might vary from a few thousand to millions. There are no shortcuts, you have to study both your personal finances and the franchise’s business model carefully. Your investment preference will be a significant consideration. Will you invest alone, or as part of a consortium? Will you be using your own working capital (your own cash), or will you look for external finance? You will need to evaluate your appetite for risk, and understand your tolerances. If you do look for external finance, additional financial support is available. Many UK banks as an example offer loans of between 50 to 70% of the franchise investment. Some franchise advisors suggest a good rule of thumb is to not commit to an endeavour that will cost you 3 times more than the capital you already have, however. Some franchise businesses can even assist with startup costs, providing financing options to get you up and running. Nevertheless, depending on the route you choose, you may find you’ll need to submit a business plan that details your first 3 to 5 years of operation. Your plan may also need to provide a clear and detailed overview of your personal assets, finances and liabilities.4. Do thorough research
Even after choosing your franchise type and undertaking your financial planning, deciding on the best franchise is a research-based process where the top priority is finding the right fit between the brand and you, the franchisee. A good list of things to research before embarking on a franchise include:- The company’s reputation
- The company’s business model
- The company’s lifestyle fit (i.e, is the work demanding? Does it align with personal time commitments, motivations and goals?)
- The costs associated with starting the franchise. To aid with this, research beyond the franchise fee alone and consider the wider impacts, such as the cost of buying a building (if needed), the costs of insurance, equipment, professional licenses and qualifications, inventory and stock costs, marketing, staffing, etc.
5. Put money aside for marketing
Typically, franchisees will pay a franchise fee, as well as set-up costs and ongoing royalties. However, some franchises also require a regular marketing fee to be paid too. The cost might be covered in the form of a percentage taken from the franchisee's gross sales, and overall it is used to cover the promotional costs of the franchise. However, alongside this general fee remember that you will be in charge of the marketing and advertising of your own branch of the franchise. That means that on a local level, you may need to ensure that potential customers are engaging with your business. So, as well as paying for advertising, you’ll need to ensure you have enough money to cover competitions, discounts, charity raffles or obligations, or other initiatives such as local team sponsorship.6. Check that you are ready
Becoming a franchisee is a commitment. Even if you’ve decided on your franchise type and undertaken thorough research and planning it’s still best to ensure that you are ready by checking that the franchise is a good fit for you. These questions can help you to decide whether or not the franchise will be right for you:- What level of support do I need?
- Does the projected return on investment work for me?
- Do I trust the franchisor?
