What franchise should I buy?


  1. Introduction
  2. What franchise should you buy – the factors to consider
  3. Initial and Ongoing Costs
  4. Franchise Model and History
  5. Franchisor Support
  6. Legal Considerations
  7. Territorial Rights
  8. Market Demand
  9. Location
  10. Financial Performance
  11. Exit Strategies
  12. Peer Review
  13. Economic and Regulatory Environment
  14. Work-Life Balance
  15. Conclusion

Introduction

There are a lot of franchises out there.

Even if you’re new to them you probably know of a few already. You have almost certainly heard of others, but don’t even know they’re franchises.

They come in all sizes, shapes and forms too. They range from one man band-type businesses where you can work from home with a great deal of flexibility and a format that lets you work when and where you like…all the way to huge business ventures with multi-million pound premises, large numbers of staff and a strict way of doing things. Likewise, the cost of a franchise can vary from a few thousand all the way into the millions.

This huge variability means that there is a franchise for everyone who wants one.

But which franchise is right for you?

Back to the top


The factors to consider

By far the biggest factor you should consider is a simple one (but probably not the one you may think).

It’s all what interests you.

I get it. This is standard marketing rubbish isn’t it? It’s an attempt to deflect you from the `real’ question on everyone’s lips but no one wants to address because it’s vulgar, selfish and grasping. Namely…money.

No one starts a business up with a hope to make a loss. But hear me out.

If you aren’t interested in what your business does, it’s going to show! It’s going to be obvious to your potential customers, your actual customers and just about everyone else you’ll come into contact with. It’s probably going to effect the aspects of any business you own too. You’re not going to look forward to working, you’re not going to `go that extra mile’ when needed and you’re not going to shine as a business owner, nor will you provide good service.

If you’re in it for the long run – and you probably should be as franchises aren’t money-making trees that produce cash the day after the contract has been signed in most cases – you need a long term plan. If you actually like the business you own, you have a huge advantage from the start.

Of course, there are other factors though.

Back to the top


Initial and Ongoing Costs

This includes initial fees, royalties and ongoing contributions like marketing fees. These fees can vary wildly depending on the franchise you’re looking at. As I’ve mentioned above it could be anything from a one-man-band type business where you can work in the comfort of your own home in the evenings…or a huge hotel complex in a city centre with large numbers of employees that’ll require you to spend a huge sum upfront.

Similarly, royalty fees (the commission you pay to the franchisor) can vary in amounts and structure, as can other fees that you’re going to need to pay each month/year.

Some franchises will incorporate these fees into an `upfront’ cost which means that you’ll pay more at the start and less going forward; others may not.

Back to the top


Franchise Model and History

The franchise’s business model and its track record. Factors include longevity, growth and financial stability of the franchise, as well as its reputation in the industry.

Again, there are big and small franchises out there, new and old. While it’s tempting to go with a big, long-established franchise you’ll be paying more for a repeatedly proven business model and brand compared to a smaller or newer one that is just getting off the ground. The nature of the franchise is a factor too – because like other businesses they’ve got their own characteristics that may or may not suit you.

Back to the top


Franchisor Support

What type of training and ongoing support does the franchisor offer? This can include marketing, training, product development and operational support.

What resources are available to you? Is there a handbook? Training videos, documentation? How easy is it to increase you business and operational knowledge? An `absentee’ franchisor who isn’t available to help when needed can be a real problem!

Back to the top


Legal Considerations

What are your rights and obligations, the terms of the franchise agreement and any litigation history of the franchisor?

This should be documented in your contract with the franchisor and you should ensure you understand what can and can’t happen in most situations. If you need clarification, speak to the franchisor and/or a legal advisor to ensure you are completely clear about things. It’s far easier to do this before you’ve signed and far less stressful too!

Back to the top


Territorial Rights

Does the franchise agreement includes territorial protection for your franchise location, which can shield you from competition with other franchisees in the same brand?

It’s important to understand in geographical-type franchises if the franchisor may want to offer another franchise in a location close to you one! This may be addressed in the contract (and if you’ve got concerns about this it is something you should absolutely address before signing anything).

Back to the top


Market Demand

What is the demand for the franchise’s products or services in your intended location?

The number of clients/business you get will be driven by demand, so it is important to understand your potential client base. Do your research to try to better understand this.

Back to the top


Location

Evaluate your location for accessibility, visibility, customer traffic and its appeal to the target demographic.

Remember that increasingly that visibility can come from `non traditional’ means such as social media. So consider your marketing strategy and anything provided by the franchisor to make things easier for you.

Back to the top


What franchise should you buy? Look for elephants in the room!Financial Performance

How are existing franchises doing? This includes sales figures, profit margins and other relevant financial metrics.

When evaluating the financial performance of a franchise, it’s essential to carefully review historical sales data across the network to gauge potential revenue and compare these figures with industry standards. Understanding profit margins is crucial, as is determining the break-even point to forecast when the franchise will start generating profits. A detailed cash flow analysis will reveal the franchise’s ability to sustain operations, manage unexpected costs and potential for expansion. Speaking with existing franchisees provides practical insights into financial realities, such as how actual revenues measure up against initial expectations and the impact of ongoing costs like royalties. Additionally, considering broader economic conditions is vital, as market fluctuations can significantly affect consumer behavior and, consequently, the franchise’s financial stability. Altogether, these factors provide a comprehensive view of the financial health and long-term sustainability of the franchise in its competitive market landscape.

Back to the top


Exit Strategies

What exit strategies are available? Understand any restrictions on selling your franchise and the franchisor’s rights if you decide to sell or terminate the agreement.

This should be documented in any contract you see (and sign). Some franchisors may reserve the right to charge an exit fee if you decide to leave because you don’t wish to continue with it while others may agree for you to depart without the need to do so. Similarly, some may need to approve a franchise sale to ensure the buyer is suitable.

Back to the top


Peer Review

Speaking with existing and past franchisees about their experiences is useful. Their insights can reveal a lot about the franchisor’s practices and the day-to-day challenges of running the franchise.

Nothing opens your eyes quite like speaking to someone who has done it! You’re going to find out what it is like for `someone in the trenches’ – who does it day to day.

Back to the top


Economic and Regulatory Environment

What are the specific economic or regulatory factors that could impact the franchise? This includes local, regional and national laws and regulations that may affect business operations.

Do your research and ask your franchise about this to ensure there are no surprises!

Back to the top


Work-Life Balance

Consider the personal investment and number of hours you’ll need to commit to make the franchise successful and whether this fits with your desired work-life balance.

If you’re new to owning your business it’s almost certainly going to be the case that it is going to take more work than you imagine. That’s not to say it is impossible and your franchisor should be both upfront about what is involved as well as having systems to make things as simple as possible!

Back to the top


Conclusion

It’s a lot to take in! You obviously want something that is going to make more money than it costs – that is a given! But you also need to make sure that operating a franchise – which could occupy a significant amount of your time is something you’re looking forward to instead of dreading.

Owning a franchise is an amazing way for anyone who wants to own their own business, albeit with the security of knowing they have a model and brand that has been proven to work if operated properly and the support of people who have `been there, done that’ – who can reassure you when needed as well as help you iron our any wrinkles that crop up.

It’s important to ensure you are completely happy with what you’re buying before you sign on that dotted line – because it’s a big undertaking!

Back to the top





law

More From Author

A guide to civil litigation

Are you facing a legal disagreement or problem? We know that dealing with legal matters…

A guide to some of the most impactful UK law cases

In the ever-evolving landscape of the UK legal system, certain cases shape the course of…

What is Joint Tenancy? – Thomas & Thomas Solicitors Ltd

In this blog, we’ll unravel the intricacies of property co-ownership, specifically the difference between ‘Joint…

Leave a Reply

Your email address will not be published. Required fields are marked *