How to buy a franchise

24 October 2006
How to buy a franchise

Franchising offers security and a ready-made concept for budding businesspeople who want to work for themselves. Deborah Wyatt from Business Link provides guidance on how to buy a franchise.

Business Linkis a government network run by the Department of Trade and Industry that provides practical and impartial guidance for new and existing small and medium-sized enterprises.
The idea of being self-employed and independent is appealing, but in reality, starting a new business can be a real challenge.

For anyone who wants to work for themselves running a business but doesn't have that vital business idea, or prefers the security of an established concept, it is worth considering taking on a franchise.

Franchises are businesses that operate under the same brand - using the same systems, and offering the same product or services - but are run as independent companies.

The franchiser provides the initial concept and a recognised brand, along with help and support to the franchisee who sets up the company.

Domino's Pizza to Burger King and Subway - are franchise businesses, each with their own success stories.

Successful franchises have a much lower failure rate than completely new businesses, but it isn't all plain sailing. Franchised businesses still require hard work and perseverance - the business owner still has control over the venture's success.

Is a franchise for you? Franchising can describe a range of business arrangements. Understanding exactly what you're being offered is therefore essential. First, you must make sure the franchise route is right for you. Do you want to start your business from scratch or invest in a franchise, a business blueprint with a recognised brand? Think about what kind of business you want and what skills and interests you have that will make it a success.

Finding your franchise There are a number of ways to identify your future franchise. One way of researching what franchises are available is by attending a franchise exhibition and seeing what's on offer. Franchises are also advertised in various national newspapers, trade publications and websites. Make good use of the services on offer from organisations such as Business Link and the British Franchise Association and websites such as franinfo.

Assess franchise opportunities carefully, ask questions and talk to other franchisees to make sure you are making the right decision. Tread carefully and be cautious as not all advertised franchises are legitimate. Anyone in the market for a franchise must apply the same analysis required for any business decision - what the business is, how it operates, and the strength of competition from other businesses.

Think finance To boost your chances of success, investigate the financial prospects for the business by looking at past performance. This, along with the length of time the business has been established, will give you an indication of how safe and viable a choice it is. An analysis of no less than three years' accounts should give you enough material to fully understand the financial reality and prospects.

You may need to approach your bank and ask if it will consider a loan for the type of franchise you're considering. Like all businesses, some are riskier than others, although franchises with a good track record are often easier to get loans for.

Research your market In addition to the information the franchise gives you, do your own market research into customers and competitors in your area. See if there are any other businesses providing the same product or service, and if so, how your offering would fare against theirs. Consider looking at other areas for marketing ideas, like advertising and direct mail, to see how it would work for you.

The agreement The franchise agreement is crucial. Don't sign any agreement, or pay any fees or deposit, until you have taken legal advice from a solicitor. The contract typically covers all areas of the franchise relationship including the term of the contract, the restrictions imposed by the company and, importantly, exit procedures.

This agreement is a binding contract, which will set out the franchiser/franchisee relationship from the initial set-up onwards. This contract should not be entered into lightly, but remember it is designed to protect the interests of all parties - both you and the franchiser.

Some top tips to avoid common franchising pitfalls:

  • DO NOT take up the first opportunity before investigating alternatives
  • DO NOT allow yourself to be hurried into making a decision
  • DO NOT pay any non-refundable deposit
  • DO NOT commit yourself before you're completely satisfied
  • DO NOT assume a business will work in your area just because it works elsewhere
  • DO NOT rely on the forecasts provided by the company selling you the franchise
  • DO NOT sign any agreement without legal advice
  • DO NOT forget to write a business plan. Although the franchise is part of a wider business, it should be treated as an individual one

Ultimately, the right franchise can give you a head start in setting up your own business. Building on a proven franchise business blueprint, make the most of your entrepreneurial flair in a supportive, recognised environment.

Find out more Call 0845 600 9 006 to locate your nearest Business Link service

Setting up a franchise scheme

Franchise agreements

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