Buying a franchise

Buying a franchise is an option if you want to run your own firm but don't have your own business idea. It can be an attractive, low-risk choice, but the restrictions mean it isn't right for everyone. Kat Knight weighs up the pros and cons
Buying a franchise gives you the opportunity to capitalise on an established brand. "Franchising is a business relationship between someone with a proven idea [the franchisor] and someone else looking to use that idea [the franchisee]," explains franchise consultant Iain Kerr.

The franchisee buys a licence to use the franchisor's business idea, of either a business format such as a fast-food restaurant or a product or trademark. "The franchisor charges an upfront fee and then, usually, an ongoing monthly management fee," adds Kerr. "This is likely to be an affordable figure - ultimately, the franchisor's profits are derived from the same source as the franchisee, so by charging a high ongoing fee they would not help their business or the franchisee in the long term."

The benefits

Franchising is a boom industry in the UK. Research from the British Franchising Association shows that 92 per cent of franchisees are trading profitably. "Buying a franchise enables you to hit the ground running - the marketing, branding and administration required to set up a business is already done," says Kerr, speaking of the key benefits. "A good franchisor will provide you with training and support from the outset, to ensure that you become profitable.

"Often, it's less risky than launching your own product or service, and you're likely to be able to access bank finance more easily. A good franchisor will have made contact with the banks, so they will be fully aware of the success of that business idea. Find out who the franchise manager is at your bank and talk to them," he advises.

The pitfalls

"Don't see franchising as the easy option," Kerr cautions. "It will require just as much hard work and responsibility as running any business and it does have its downsides." Remember that the franchisor still owns the overall business system and may make changes to the brand. And your outlet's reputation depends not only on you but on all the other franchises in that network - bad publicity caused by another outlet can reflect badly on you.

"Think long term," recommends Kerr. "To start with, you'll rely 100 per cent on your franchisor because they supply all the support you need. But two years down the line when you are successfully running your business without the need for as much assistance, paying royalties could start to grate."

If you decide that franchising is for you, spend plenty of time and effort on finding the right franchise. "A lot of legwork is needed," advises Kerr. "Visit franchise exhibitions to get advice and a flavour of what different franchisors do. Make sure your franchisor is - or is in the process of becoming - a member of a recognised body such as the British Franchise Association.

"Get legal advice from specialist solicitors before committing to an agreement. If you can, talk to a franchise consultant, who will know the right questions to ask your franchisor."