Pros and Cons of Buying a Franchise

If you’re looking to be your own boss, then franchising is a great place to start. Many people look for alternatives to jobs and employment, and alongside running a standalone business stands out to many. But aside from employment and buying or starting up a business, there’s actually a third option: franchising.

For many people involved in employment working on behalf of someone else, franchising may not actually be an obvious choice. Franchising is a niche for many, but the term and operations surrounding franchising may actually go unnoticed by many. But if you’re reading this article, then great! You’ve found out about franchising – a chance to be your own boss, but not by yourself. Franchising offers the means to be your own boss and run your own business, with considerable flexibility by owning a business under an already established brand.

Let’s take a look at some of the advantages and disadvantages of buying a franchise. Hopefully these pros and cons of franchising will clear up many questions you might have. However if in doubt, find a franchise you are interested in and request an information pack. Most franchisors will be more than happy to help answer any franchise-specific questions you might have.

Advantages of Buying a Franchise

The term “Buying a Franchise” is often interchanged with “Investing” in a franchise, both of which are the same. You’ll be on your way to business ownership soon enough. First of all, if you’re new to franchising, then it would be worth checking out our franchising guide. It covers the basics of franchising and will get you up to speed with things.

A Proven Business Model

The important difference between buying a franchise and starting up a business is that with franchising, you’ll be buying the rights to trade as an already established business. Franchising offers an entry point into business ownership by taking the reins of an already established business, and reproducing the business in another area. The reason for this is:

• It helps the franchisor build their brand further by reaching a wider audience and national (and international) reach.
• It helps the franchisee get into business ownership to be their own boss, while benefiting from an already-built business model.

The franchisor – the owner of the intellectual property and business model itself – once upon a time decided to set up their own business. It might be a childcare franchise, or a pet franchise, or anything. Generally any successful business can be franchised in one way or another. After setting up their business and started trading, they would have at some point made the decision to franchise.  At this point, they would have made the decision to franchise because their existing business has proven successful. The branding, the marketing, the offering – it works.

Buying a franchise means you’ll be running a proven business in your area. The hard work of setting up the foundations has already been done.

Full Training and Support

A franchisor franchises their business because they want to grow their reach to wider parts of the country or world. In order to do that, they need to find franchisees – people looking to be their own boss and run their own business.

When you buy a franchise, the franchisor will want you to be successful. After all, the franchisor is looking for someone who’s a perfect fit, with aspirations to reproduce their business in another area. And in order to do this in the best possible capacity, the franchisor will provide full training and support. This will often be included when you “invest” in the franchise. Part of what you’re paying for will be for the training and support. If you fail, it can have consequences not only for the franchisor but for the brand and therefore other franchisees too. So now it’s easy to see why the franchisor will want you to be successful, and it’s easy to see just how eager they’re going to be when it comes to helping you along the way.

The training provided by the franchisor might take a number of forms. It could be anything from in-the-field training with an existing franchisee, right through to online courses and residential training. Business ownership shouldn’t be taken lightly and it is a big task, so contact the franchisor to find out exactly what training they offer.

Types of Franchise Training

• Accounting and finance
• Staff recruitment and training
• Health and safety
• Business-specific training – food franchises might involve training around food prep and the menus, while children franchises might require safety training
• Local marketing and brand guidelines

Many franchisors work with a number of different partners to help grow the franchise. Usually a franchise consultant will assist the franchisor with franchise recruitment, and beneficial to new franchisees, site selection and territory optimisation, so you get the best possible size territory and client base.

Ongoing, the franchisor might offer regular support meetings, calls, or conferences so that franchisees can be kept up to date with brand specific research and development. There might be ongoing changes to the business to keep up with demand and sector specific changes, new marketing strategies etc. Ongoing support provided by the franchisor will usually cover these.

Everything You Need

The franchise investment doesn’t just cover training and support. There are a number of franchising documents included, such as the franchise Operations Manual. This essential document outlines and details everything needed for the successful operation of the business. This includes brand guidelines, day to day running and information on the services rendered. Without it, the proven business model cannot be followed effectively.

Obviously one of the most important parts of the franchise investment is the franchise license itself. The agreement usually lasts 5 years (with the option to renew) but this can vary between franchises. This grants you the right to trade as the business in your own designated territory. Typically franchises will split their territories by town and city, grouping and assigning to a franchisee, but for precision, they’ll use postcodes too.

In addition to the business model, you should also receive a starting pack containing everything you need for the operation of the business. This might include store fit-out (if storefront retail), business-specific equipment (eg lawnmowers and chemicals for gardening; tools and bouncy castles for entertainment franchises; van fit-out for mobile coffee, etc). Note that while this is initial stock, you’ll need working capital. Initial stock set as part of the investment will only get you so far. You’ll need to set aside some cash to keep the business going once the start-up package has been used, through to the point of breakeven – where you’ve made back your investment and expenses, and are now profiting.

Group Marketing and Brand Recognition

As well as carrying out your own localised marketing activities such as leaflet distribution and digital marketing (eg social media), franchisees will usually pay an ongoing fee to the franchisor. This is often a fixed percentage of turnover. This money is usually used to help support group marketing, national marketing that benefits all franchisees in the network. This might include paid search ads or even TV adverts!

Remember that with a group marketing fund contributed to by all franchisees, the marketing possibilities are considerably greater than if you were to start up a business alone. Individual oven cleaners or children’s nurseries would have no benefit from a national TV marketing campaign (no point advertising nationally if you’re only serving a tiny area), let alone afford one! By utilising national marketing, it can have a considerably positive effect on the entire network.

This all contributes to growing the brand’s recognition and reputation. TV ads, magazine inserts and franchise exhibitions all help to drive more brand recognition, benefiting the franchisor and the franchisees too for years to come.

Be Your Own Boss

Many franchises offer flexible working. That includes the opportunity to work from home, or on a part time basis. Opportunities like management franchises – where you manage a team of staff who deal with client work rather than you yourself – allow flexibility to work when you wish to. This means fitting your working day around school runs or spending time with family.

Whilst you make sure you follow the franchise operations manual and follow the guidelines set out by the franchisor, you do still have the freedom of business ownership. The franchisor won’t always be holding your hand (but they’ll still be there when you need them) – so don’t think that by buying a franchise you’ve still got an employer looking down on you, because you don’t. The franchisor isn’t there to give you work. They might help you find clients/attract customers, many franchises do, and that’s a positive. But the franchisor won’t be making you do work, it’s your responsibility to ensure the business is successful, just like if you had started up the business from scratch.

Get rid of the 9-5 working week, get rid of the commuting and start enjoying what you do.

Franchise Finance

The positives just keep coming. Depending on your financial status, you may not necessarily need to raise the entire franchise investment by yourself. Although you will need to set aside working capital as mentioned earlier, the upfront franchise fee doesn’t always need to be paid for by you.

Many banks favour franchising because of their higher success rate over their business start-up counterpart. Banks such as HSBC are well involved in the franchising sector, eager to help people get into franchising. Banks are often engage with franchise exhibitions, franchise awards and more, and they’re on your side to help get your business off the ground. Whilst everyone’s circumstances are different, banks may lend up to 70% of the initial investment. There are other finance options out there too, including startup loans and asset finance. If your franchise involves the use of a van, franchisors will often have agreements in place with lenders if you can’t source your own.

So Many Types of Franchises

As I’ve said before, if a business is successful, it can likely be franchised. And because of that, as you’d expect, there are many different types of franchises out there. Some of the more unique types of franchises include:

• Cat sitting
• Pest control
• Chimney sweeping
• PC service and repair
• Mobile window tinting
• Hog roasts and corporate catering

There truly are many different opportunities out there to sink your teeth into. If you find a franchise you can see yourself running and enjoying, you’re already on your way to successful business ownership.

An Asset You Can Later Sell

When you’ve run the franchise for long enough and fancy a change of scenery or fancy retirement, you can sell the franchise. This is known as a franchise resale. Franchise resales are attractive because they have an existing client base and an established presence within a territory. A turnkey package. Some franchisees sell their territory anywhere from 5 figures up to 6 or 7 figures.

Disadvantages of Buying a Franchise

Although buying a franchise is safer than starting up a business alone, there is still the chance of failure. Franchising also comes with some drawbacks, so let’s take a look at these.

Not Proven to Succeed

Whilst you’ll be buying a proven business model, this doesn’t necessarily mean your own business is proven to succeed. True, the franchisor has established a business model which has been deemed effective, and they should have successfully opened a franchise through a pilot operation, but success isn’t always dead certain. Here are some of the reasons franchisees might fail:

• Did not anticipate the amount of working capital required to keep the business going
• The franchisor did not offer amble training and support
• The franchisee felt so confident they could deviate from the proven system and start free styling
• The franchise territory potential was underestimated and the franchisee did not have (or could not find) enough clients to make the business viable in their territory

All of the above reasons can be avoided. Working capital required can be accessed with a cash flow forecast (most franchises will advise how much working capital you can expect to need before you invest). With lack of training and support, you just need to speak out.

The monthly management service fee is there so you get continued support from head office, and it’s there so your franchisor can help market your territory. Don’t go down the route of “what am I paying a franchisor for when I can do it myself” – it’ll only end in failure.

Not Free Reign

Before investing in a franchise, you need to understand that you won’t have full control over all aspects of the business. While you will have a lot of freedom, you still need to stay within the franchise agreement and follow the operations manual. You cannot start designing and offering your own products and services.

A franchise is a scaled business model. You won’t see individual McDonald’s restaurants selling uniquely concocted burgers. Franchises are successful because they follow the same system and offer the same services uniformly and without variation. Deviate away from what works, and you’re digging a risky hole. You may even breach the franchise agreement and face legal action.

Potentially a Large Upfront Investment

Although some franchises can be bought for less than £10,000, some franchises can cost upwards of £1,000,000. High end restaurant and fast food franchises are a notable example. You’ve got your restaurant fit out, brand marketing and the license – which if it is an incredibly well known brand, understandably the license will be very expensive.

But don’t go away thinking that a franchise costs more than a business solo startup. You’re forgetting that with franchising, you’ve already got established partners and suppliers integrated into the franchise network by the franchisor. With starting up a business alone you’ll be spending time and expense finding suppliers that would otherwise be there from day one. Don’t forget the cost of mistakes too, franchising sets most of these rookie mistakes straight.

If you can’t afford a business model that is proven successful, what makes you think you can afford to start up one that isn’t?

Hopefully these franchising pros and cons have answered many of your questions around buying a franchise. There is considerable support out there for anyone looking to buy a franchise. From franchise associations to franchise consultants, the franchising community is a vast one with many people eager to help you find your way.

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