Despite the pandemic, cost of living crisis and recession, 2022 continued to deliver results across the franchising sector. Franchisors and franchisees adapted well to huge shifts in market trends and franchising truly demonstrated resilience.
If you’re looking to get into business ownership, franchising is a fantastic way to go about it. You get the comfort of being in control of your career, plus you get the rights to trade as an established business model and brand name. This security helps to reinforce the success rate of franchises, with more than 90% of franchisees claiming profitability according to a recent bfa survey. Backed with full training, ongoing support, and a start-up package that helps franchisees get off to a groundbreaking start, franchising is widely regarded as one of the best ways to get into business ownership.
Throughout 2022, Google Search saw masses of search queries and it is some of these we will look at in this article. If you’re thinking of investing in a franchise in 2023, some of these questions from last year will not only be valid, but they may apply to you! Perhaps some you’ve even asked yourself.
Biggest Franchising Questions of 2023 – Answered
This section in a broad sense, covers questions about franchising in general. Many points we will have already covered in our Franchising Frequently Asked Questions. But thanks to the pandemic, and as a recession continues to loom, there are some interesting questions that haven’t been covered elsewhere.
What is a Franchise?
One of the biggest franchising questions of 2023 that has been asked in 2022. You’ve got video game franchises, film franchises and rail franchises, but in the scenario of business ownership, we’ll assume this refers to Business Format Franchising. A franchise is a setup where franchisees trade as a franchisor’s brand, using a proven system of operation, a perfected business model which is or can be, refined over many years to withstand competition and demonstrate resilience within a market. A franchise is a method of business expansion where franchisees purchase the rights to trade as a business in their own area.
What is a Franchisor? Who is a Franchisor?
A franchisor is the entity that owns the trademarks, licensing, brand name and intellectual property of the business being franchised. This might be a sole individual, a husband and wife team, or a company. Those that govern the franchising of a particular business, are known as the franchisors.
What is a Franchisee? Who is a Franchisee?
A franchisee is a business or individual which purchases the rights to trade as the franchisor’s brand.
How to Recruit Franchisees?
There are many ways to recruit franchisees, but the first step is perfecting a franchise model. Once you have a franchise model in place and have thoroughly checked documentation and processes by a franchise legal team and franchise consultant, you can recruit franchisees.
You should advertise your franchise in as many places as possible. Just having a leaflet in your shop, or a link on your website to a web page isn’t enough. You should try to get your franchise out there subtly so it isn’t coming across as pushy. Some good ways to advertise your franchise include franchise directory advertising, becoming a member of a franchise association and creating a pinned post on social media.
Once enquiries come through, the next steps are to send them a franchise prospectus and the option to attend a discovery day or interview so they can ask questions. Proper usage of a Non Disclosure Agreement should be exercised so that the prospect does not walk away with too much information that can be used to set up a new business – copying your model.
Do I Need a Company to Buy a Franchise?
You don’t need to have an existing company or business to buy a franchise. When you buy a franchise, many franchisees will set up as a new company, making the company name the franchise name and their area name. Of course it is up to the franchisee what they call their company but this is the simplest form. Eg My Franchise Essex. Those that already own a business, such as a hotel, may simply rebrand their existing business to use that of the franchisors.
What is a Franchise Agreement?
The franchise agreement sets out the relationship between the franchisee and the franchisor. It ensures that the franchisee follows the brand correctly and outlines how the franchisee should operate the business because in many cases it will reference the Franchise Operations Manual – one of many documents the franchisor should have in place with franchising. The franchise agreement will define the rights of both parties, the responsibilities of each and the obligations of the franchisor. Contractually it may also enforce the use of a specific supplier across the franchise network.
What are the Main Reasons to Buy a Franchise?
The reasons why people choose to buy a franchise instead of starting up alone are plentiful and each person will have their own reasons and requirements. Ultimately, buying a franchise gives people a safety net when it comes to becoming a business owner. Full training and support is provided, plus a proven brand and business model, not to mention a wealth of knowledge to call upon where necessary, from both the franchisor and countless franchisees. Businesses like franchise consultancy companies and franchise associations greatly support the franchising sector and are eager to help both franchisors, franchisees and those looking to buy a franchise. Franchising offers a very supportive framework, and thanks to many banks being able to lend up to 70% of the franchise investment, franchising is within reach of many.
Having this considerable network of support is much better than going it alone. You’re not on square one when going into business ownership via franchising. You get a comprehensive support package and initial equipment and starting stock where applicable. Becoming a franchisee with a big name brand is very rewarding and can be very lucrative. Franchising enables franchisees to regain control of their career and their earnings.
What are the Pros and Cons of Franchising?
The main benefit of franchising is access to a proven business model, proven brand name, access to full training and support, plus access to the franchisor’s partners, suppliers and wealth of knowledge.
Franchising isn’t for everyone, because there are a number of costs involved with franchising. Working capital, investment and fees all need to be taken into consideration. Back on the positive side, some franchises can be run from home requiring less than £10,000 investment. There are many franchise opportunities out there, and ultimately if it is something you’ll enjoy and love, you’ll be sure to make it a success if you apply enthusiasm and desire to achieve.
Continue reading, the Pros and Cons of Investing in a Franchise in the UK.
What is a Management Franchise?
As an opposite to owner-operated, a management franchise is a business where the franchisee doesn’t need to carry out the hands on work. Taking an administrative approach rather than one in the field, a management franchisee manages a workforce who carry out the work. A good example of a management franchise would be cleaning. The franchisee employs cleaners whilst never doing any cleaning themselves.
A franchise where the franchisee manages a workforce is called a management type franchise.
Biggest Franchise Finance Questions Asked
One of the biggest factors involved in franchising is the investment, costs and earnings. These are just some of the top questions asked by people looking to franchise their business or buy a franchise in the UK.
How Much Do Franchises in the UK Cost?
There is no definitive answer for this. Some high end franchises can cost six figures just for the license fee, with McDonalds and big name brands potentially costing a seven figure investment. However franchising isn’t out of reach for most people. Banks can lend up to 70% of the franchise investment and there are many other lenders out there which favour greatly to franchising. Some franchises cost less than £15,000 and with funding this can be a lot less. It is a good idea to set aside working capital – money to keep the business running until you achieve a return on investment – and the franchisor can advise how much this should be.
To put it into perspective, an oven cleaning franchise shouldn’t cost more than £25,000. A pet care franchise will cost anywhere up to £20,000. Restaurant franchises will cost around £300,000 including fitout, and this figure will increase depending on the trademark and brand. Franchises that can be run from home will usually require less working capital and less upfront investment, but the investment will vary depending on the nature of the business. Management cleaning franchises will cost up to £50,000 total investment, while internet based work from home franchises may be less than £10k.
How Much Does it Cost to Franchise Your Business?
Franchising a business can cost more than the franchise investment itself. Many franchisors set a recruitment budget of around £3,000 per year. Based on a cost per lead of £10, this achieves around 300 leads (enquiries) and at a lead conversion rate of 5% this would allow for a franchisor to expect around 15 franchisees.
Of course things are a lot more complicated than that. The conversion rate for new franchisees, for a new franchise – one with less than two franchisees in the network, can be less than 2%. It is a lot harder and a lot more expensive for a new franchise business to recruit franchisees than it is for an established franchise network with many franchisees.
Advertising isn’t the only cost involved, franchise consultancy fees and legal work to prepare franchise documents will all add up. Don’t be surprised if you spend over £20,000 on getting your franchise model off the ground. Remember that it is a good idea to test the system using a pilot franchise and this can add to costs further.
When franchising, you should take your franchising expenses into consideration when determining the franchise fee, so you can make this money back.
Are Franchise Fees Tax Deductible?
Ongoing fees are considered business expenses and are subject to tax deduction in many cases. However different business assets will be subject to different classifications so check with the franchisor. Initial franchise fees paid upfront are not tax deductible because they’re considered capital expenditure.
Are Royalty Fees Tax Deductible?
Yes – royalty fees are tax deductiable because they’re legitimate business revenue expenses, not capital expenditure.
Are Franchise Deposits Refundable?
This depends on the franchisor and how much work needs to be undertaken by them to secure your territory. In most cases, franchise deposits are non-refundable. There may also be a holding fee for your territory which as you’d expect, is not refundable as the territory has been held for you.
Franchise Brand Questions Answered
Many big name brands are franchising – whilst others aren’t. Big name brands like McDonald’s and KFC frequently make the list. Here are some of the hottest franchising questions asked in 2022 that will apply greatly and continue to get asked, in 2023.
Is KFC a Franchise?
Yes – KFC are actively recruiting franchisees in the UK as of February 2023. KFC offer a number of franchise models to suit finance and premises size requirements. Ranging from small footprint 1000sq/m setups to full restaurants, KFC are looking for franchisees to set up new sites across the UK.
Is McDonald’s a Franchise?
Yes McDonald’s is still franchising in 2023. A strong brand name, you’ll need a sizeable investment of seven figures to fully set up a McDonald’s franchise in the UK. Funding support is available so your personal investment may be under this figure.
What are the 3 Biggest Franchises in the World?
McDonald’s continues to retain its number one position amongst many lists of top franchises, whilst the 7-Eleven franchise boasts second position. Third biggest franchise is recognised as KFC.
However there is no definitive source of which franchises are the biggest, best or top. Whilst McDonalds frequently retains position one on many lists, those that follow often conflict between Costa Coffee franchise, Starbucks, Subway, 7-Eleven Franchise and more.
Is Starbucks a Franchise? Is Starbucks Franchising?
Whilst Starbucks has franchised and grown considerably as a result, Starbucks is not currently recruiting new franchisees in the UK. This could change at any time and anyone looking to invest and grow with Starbucks should keep an eye out for updates.
Is Burger King a Franchise?
Burger King continues to franchise globally as of 2022, recruiting franchisees to open new units as it expands further.
Still got a question? Get in touch with our team and we’ll happily answer any franchise questions you may have. We’ll even add it to our biggest franchising questions of 2024!
