Buying a franchise could be your solution if you possess the right skills to be a business owner but don’t yet have the business idea to turn your entrepreneurial dreams into a reality. In this article, Rapid Formations – a leading company formation expert in the UK – looks at what franchising is and then covers the pros and cons of buying a franchise.

Franchising Explained

A franchise is an operating business whose model can be rented by other people.

If you rent a franchise, you gain permission to use the business’s name, marketing assets, and trademarks associated with the business. You – as the franchisee – will then typically share your profits with the owner of the business, the franchisor.

Some of the world’s established brands are franchises, including McDonalds, KFC, Starbucks and Pizza Hut. But they aren’t limited to fast food chains and coffee shops. There is a wealth of franchise opportunities spreading across sectors such as health and fitness, recruitment, child care, pet care, education, and more.

According to data from NatWest, approximately 44,000 franchise businesses are operating in the UK, with the industry generating nearly £15.1 billion annually. There’s no doubt about it: franchising is big business. But is it right for you?

The Pros of Buying a Franchise

• Mininal experience required

Ultimately, this will depend on the franchisor, but no experience in the specific industry you will be operating in is required when purchasing a franchise. All the training that you need is given to you and your team.

This makes it an ideal path to business ownership if you possess all the skills necessary to run a business but don’t have one specific area of expertise or haven’t had that ‘flashbulb’ moment of inspiration that’s provided you with your own entrepreneurial idea.

• Risk factor is lower

When setting up your own business from scratch, you are entering a work of unknowns. Is my product or service good enough? Will people be interested in what I’m offering? How much will they be willing to pay me? The risk is huge because you simply will not know until you get started.

Franchises, on the other hand, are successful because the (majority of) unknowns have already been uncovered. The business model works; all you need to do is ensure you stick to the guidelines provided.

• The brand is ready

One of the biggest challenges in the startup world is establishing a brand that resonates with users. There are so many things you need to get right. The name. The logo. The URL. The website. The tone of voice. These are all things that take time and a lot of effort to perfect.

With a franchise, this hard work has already been done for you. The business has already been established, and the current marketing model attracts customers.

• Funding opportunities

As a franchise, you will be seen as less of a risk to banks and other lenders if you ever require funding or investments.

Not only will you be able to provide your own financial information to demonstrate why you’re suitable, but you should also be able to lean on the franchisor’s financial information – making you a safer bet.

• Help is at hand

All businesses encounter difficult periods, including franchises. However, if you’re operating a franchise, you essentially have a readymade support network that you can fall back on when times get tough – something not in the reach of most businesses.

A good franchisor can assist with a range of problems, such as faulty equipment, workspace issues, and even managerial challenges you are facing. After all, it is in their best interests that your business succeeds.

The Cons of Buying a Franchise

• High starting costs

Buying into a successful franchise comes at a cost. You can expect to pay thousands and sometimes millions if the brand you’re looking to work with is a household name. This can make franchising a non-starter for people with limited financial means.

Of course, franchising isn’t all about huge, high-street brands, there are plenty of opportunities to work with smaller, niche businesses. However, whilst the startup costs of getting involved with these brands can be relatively low, the risk factor can be high.

• You don’t have full autonomy

A franchisor will often provide strict guidelines that you must adhere to (understandable, considering that these will probably have achieved a level of success). This can be frustrating for individuals who want to have full control of the business that they are running.

Becoming your own boss is a key element of entrepreneurship, and whilst franchising does provide a level of autonomy, the larger decisions regarding the running of the business aren’t always yours to make.

• It’s not always long-term

Your agreement with the franchisor will set a time frame for how long you can operate the franchise. If you are doing a good job, there’s every chance that this period will be extended, but there’s also the risk that it won’t – or that the initial rates that you agreed will drastically increase.

This uncertainty can be problematic, especially for individuals who see running a business as the ultimate show of taking charge of their lives and not having to rely on anyone else.

• Conflict with the franchisor

Running a franchise is a partnership between the franchisee and the franchisor. As with any partnership, there is always the potential for conflict. If you do find yourself in the unfortunate position of not getting on with a franchisor, you’ll find the balance of power is very much in their favor.

Because of this, when researching the different franchises that you could be working with, at the same time as getting a feel for the overall brand, try to get to know the franchisor (or the contact you will be working with). If you think they’ll be supportive, fantastic. However, if you think there will be a clash of personalities, consider looking elsewhere.

• It could just end

Franchises are built on successful business models, but like any business, they can crash. Sometimes an individual branch of a franchise can fail – in which case you as the franchise manager will be responsible – sometimes the overarching franchise will fail – and the franchisor would be to blame.

In the case of the latter, this may be despite a prolonged period of effort and perhaps even success. For a business to fail through no fault of their own can be too much for some people to consider.

Thanks for reading

So, there you have it, the pros and cons of buying a franchise. As highlighted, franchising can represent a solid route into entrepreneurship, but it does come with its downsides.

Published by: Khy Talara