Last editedMay 20222 min read
Buying a franchise can be a rewarding business venture, but there is plenty to consider. Here we will describe the necessary steps needed to identify the ideal franchise for you, as well as the general advantages and disadvantages of buying a franchise.
How to buy a franchise
The first thing to do is decide which kind of franchise you want and where you want it. This part of the process will eliminate the vast majority of franchising opportunities. You will then need to review the remaining options and thoroughly research each of the possible franchisors. You'll need to know your costs up front, and not just the buying-in fee but also the costs of training and ongoing support.
If costs are not a problem, the support each franchisor offers is one of the most crucial parts. Find out what kind of support is offered, and also the rules and restrictions the franchisor has in place.
To understand how to buy a franchise, consider these items:
type of franchise and franchisor
costs of start-up and ongoing support
what kind of support is offered
trading rules and restrictions
Advantages of buying a franchise
Being able to use a recognised brand name that has already had success is a massive leg-up for your business ambitions. Your customers will already be familiar with the name, plus your franchise will also benefit from any promotion or marketing undertaken by the original franchisor.
A good franchise will offer plenty of support to get you started and will help you to be successful in the future. It will provide introductory training which may consist of general business operations as well as training specific to the franchise. The original franchisor may also help locate suitable premises and provide all the information you need to get up and running.
Another significant advantage of buying a franchise is the possibility of gaining exclusive rights to that franchise for a specific area, such as a city or county. Also consider that borrowing money for a proven franchise can be much easier than borrowing money for an unproven start-up.
Disadvantages of buying a franchise
Buying a franchise usually involves significant start-up costs. Fees for buying a franchise vary greatly, from as little as a few thousand pounds up to several hundred thousand.
You will have to operate within certain limits determined by the original franchisor, which may stifle any creative instincts you have for new products or promotions. Also remember that if the time comes when you want to sell the franchise, your options will be limited by buyers needing to be approved by the original franchisor.
You will likely need to continue paying a franchise royalty on sales, or at least an ongoing management fee. Such payments will either be in the form of a fixed amount or a percentage of sales revenue. These payments must be paid regardless of whether or not you are making a profit.
There can be additional costs for the likes of advertising, and fees for the training and support you receive. Overall expenditure needs to be based on the services and support you will receive.
Other risks involved in buying a franchise include the possibility of the franchisor's failure to provide the agreed training or support. The franchisor might also go out of business regardless of how well you are doing. They could also be sold to a new owner who changes certain aspects of the business or who is less amicable.
The reputation of your franchise is also at the mercy of the franchisor and the other franchises – bad actions by one can negatively affect all.
We can help
If you’re interested in finding out more about buying a franchise, or any other aspect of your business finances, then get in touch with our financial experts at GoCardless. Find out how GoCardless can help you with ad hoc payments or recurring payments.