Franchising has become an increasingly popular business model in the UK, offering aspiring entrepreneurs a path to business ownership with the support of an established brand.
The statistics speak for themselves – the UK franchise industry contributes over £17 billion per year to the economy and employs more than 710,000 people. Best of all? Franchises boast a pretty impressive success rate, with 93% of franchisees reporting profitability.
But buying a franchise can feel like a big lift – how do you know if your investment is worth it? What if you choose the wrong franchise? To help guide you through the process, we’ve compiled a list of steps to take before buying a franchise in the UK.
10 Steps to Take Before Buying a Franchisee
1. Research the Franchise Market
Before diving into any specific franchise opportunity, you’ll want to get to know the market a bit.
Do your research and get a broad understanding of the franchise market in the UK. This will help you identify trending industries, understand the competitive landscape, and recognise the characteristics of successful franchises.
Study Industry Reports and Franchise Directories
One way to get a head start on your research is by reading industry reports from reputable sources such as the British Franchise Association (BFA) or franchise consultancies.
These reports often contain valuable insights into market trends, growth sectors, and emerging opportunities. You can also browse franchise directories, which can provide great insights into the available franchise opportunities across various industries.
Attend Franchise Exhibitions and Events
While paper findings are great, nothing beats person-to-person learning. Franchise exhibitions are excellent opportunities to meet franchisors face-to-face, attend informative seminars, and network with other prospective franchisees.
Read Franchising Publications and Websites
Stay informed by regularly reading franchising blogs and websites. These resources often feature success stories, industry news, and expert advice that can help you understand the nuances of franchising.
Don’t be shy – offer your own insights by writing for publications! This can give you a chance to write about your own experiences with franchising and potentially get your name out there as a thought leader in the industry.
Did you know? The UK franchise sector has shown consistent growth, with over 48,600 franchised units now operating in the country – more than double the number from 25 years ago.
2. Assess Your Financial Situation
Buying a franchise requires a significant financial investment. It's essential to have a clear picture of your financial standing and determine how much you can afford to invest.
Calculate Your Net Worth
Begin by creating a comprehensive list of your assets (what you own) and liabilities (what you owe). This will give you a clear picture of your net worth and help you understand how much you can realistically invest in a franchise.
Net Worth Formula: Net Worth = Assets - Liabilities
Assets can include savings, investments, real estate, and other valuable possessions. Liabilities can include credit card debt, loans, and mortgages.
Once you have determined your net worth, consider how much of that amount you are comfortable investing in a franchise. It's important to leave room for unexpected expenses or emergencies that may arise during the process.
Determine Your Available Liquid Capital
Franchisors often have minimum liquid capital requirements. Assess how much cash you have readily available for investment. This should include savings, easily liquidated assets, and any funds you can access without incurring significant debt. This will give you an idea of how much you can start with and what type of franchises you can afford.
Consider Financing Options
Just because you don’t have a huge lump sum of cash on hand doesn’t mean you can’t invest in a franchise. Many franchisors offer financing options, such as loans or payment plans, to help potential franchisees get started.
- Bank loans specifically designed for franchises
- Small Business Administration (SBA) loans
- Franchisor financing programs
- Investor partnerships
Factor in Ongoing Costs
Initial franchise fees are just the beginning. Be sure to account for ongoing costs such as:
- Royalty fees (usually a percentage of your gross sales)
- Marketing and advertising fees
- Inventory and supplies
- Staff wages
- Rent and utilities
Pro tip: While 53% of franchisees report being quite or highly profitable, this figure increases to 66% for franchises running for 5+ years. Be prepared for the long haul and ensure you have sufficient financial resources to sustain your business during the initial growth phase.
3. Understand Legal Requirements and Regulations
Franchising in the UK is subject to various legal requirements and regulations. The last thing you want to do is run afoul of the law and risk jeopardising your business.
Study the British Franchise Association (BFA) Code of Ethics
The BFA's Code of Ethics sets out the standards of conduct for ethical franchising in the UK. While adherence to this code is voluntary, many reputable franchisors are BFA members and abide by these standards. Understanding this code will help you recognise ethical franchise opportunities.
Understand the Legal Framework for Franchising in the UK
Unlike some countries, the UK doesn't have specific franchise laws. Instead, franchising is governed by various areas of law, including contract law, intellectual property law, and competition law. It's crucial to understand how these laws apply to franchising agreements.
Research Industry-Specific Regulations
Depending on the industry you're entering, there may be specific regulations you need to comply with. For example, food franchises must adhere to food safety regulations, while childcare franchises need to comply with safeguarding requirements. Others, such as coaching or tutoring franchises, may need to obtain certain certifications or qualifications.
4. Evaluate Your Skills and Interests
Successful franchising requires more than just financial investment – hey require you to come alongside your new purchase and offer support and guidance.
It's important to reflect on your own skills and interests before committing to a franchise. Are you passionate about the industry? Do you have previous experience in management or customer service?
Assess Your Strengths and Weaknesses
Conduct an honest self-assessment of your skills and experience. Consider areas such as:
- Management and leadership
- Sales and marketing
- Financial management
- Customer service
- Industry-specific technical skills
Running a business requires significant time and effort. Choosing a franchise in an industry you're passionate about can help maintain your motivation and job satisfaction over the long term.
Evaluate Your Management and Leadership Skills
Some franchises require you to manage a team or lead a portfolio of clients. Either way, you’ll need the right set of leadership skills to make sure your business runs smoothly. Consider your previous experience in management or customer service, and think about whether you have the necessary skills to effectively lead others.
If you don't have much experience in this area, consider taking a course or workshop on leadership and management to boost your skills. You can also reach out to other franchise owners for advice and mentorship.
Think About Your Preferred Work Environment and Lifestyle
How you’ll spend your days is also highly impactful in the long-term success of your franchise. Some franchises require long hours and high-stress situations, while others may offer more flexibility and work-life balance.
Think about what type of work environment and lifestyle you prefer, and make sure it aligns with the franchise you are considering.
- Are you comfortable with the working hours required by the franchise?
- Does the franchise allow for the work-life balance you desire?
- Are you prepared for the physical demands of the role (if any)?
- Does the franchise's culture align with your personal values?
Remember: 91% of franchisees have declared satisfaction with their franchisor. Choosing a franchise that aligns with your personal and professional goals can contribute significantly to your satisfaction and success.
5. Study the Franchise Disclosure Document
The Franchise Disclosure Document (FDD) is a crucial piece of information provided by the franchisor. It contains essential details about the franchise opportunity that you must thoroughly understand before making a decision.
Company History and Financial Performance
This section provides insight into the franchisor's background, how long they've been in business, and their financial stability. Look for:
- The company's growth over time
- Any legal issues or bankruptcies
- Audited financial statements
Fees and Expenses
This will show you all the potential costs associated with buying and operating the franchise. It includes:
- Initial franchise fee
- Ongoing royalty fees
- Marketing and advertising contributions
- Estimated start-up costs
Obligations of the Franchisee and Franchisor
This outlines what's expected of you as a franchisee and what support you can expect from the franchisor. Pay attention to the fine print here, as this will define the terms of your relationship with the franchisor. Some key points to look for include:
- Training programs
- Ongoing support services
- Operational requirements
Territory Rights
Understand the geographical area in which you're allowed to operate and whether you have any protected territories. For example, in the UK, franchisees may have exclusive rights to operate in a certain city or region. This can impact your potential for growth and competition within the industry.
6. Speak with Current and Former Franchisees
One of the most valuable sources of information about a franchise opportunity is the network of current and former franchisees. Their firsthand experiences can provide insights that you won't find in any official documentation.
Reach out to several franchisees and ask for a brief interview. Prepare a list of questions covering aspects such as:
- Their overall satisfaction with the franchise
- The accuracy of the franchisor's claims about earnings and support
- Challenges they've faced and how they overcame them
- Their relationship with the franchisor
If possible, visit multiple franchise locations. This will give you a sense of the day-to-day operations and allow you to observe customer interactions and staff morale.
Seek Diverse Perspectives In Your Search
Try to speak with franchisees at different stages of their journey – as you may not always get the full picture from just one interview. Some franchisees may be in their first year of business and still learning the ropes, while others may have been with the franchise for many years and have established successful operations.
Additionally, don't limit yourself to only speaking with franchisees who are happy and successful. It's important to also hear from those who may have faced challenges or even failed with the franchise. This will give you a well-rounded perspective and allow you to make an informed decision.
7. Review the Franchise Agreement Carefully
The franchise agreement is a legally binding document that outlines the terms of your relationship with the franchisor. You want to make sure you cover all bases and fully understand your rights and responsibilities as a franchisee.
Understand Your Obligations
Pay close attention to sections detailing your responsibilities as a franchisee. Not only will you be required to pay an initial franchise fee and ongoing royalties, but you will also be expected to uphold certain standards set by the franchisor.
This may include maintaining a certain level of quality in your products or services, adhering to specific branding guidelines, and participating in any marketing or advertising efforts.
Review Renewal and Termination Clauses
Understand the conditions under which:
- You can renew your franchise agreement
- The franchisor can terminate your agreement
- You can exit the franchise system if needed
Check for Hidden Costs
Sometimes there are hidden costs you don’t see until it’s too late. Make sure to take your time in the early stages, and look for any additional fees or charges not clearly outlined in the FDD:
- Technology or software licensing fees
- Mandatory equipment upgrades
- Required refurbishment or remodeling
While many terms of a franchise agreement are standard, there may be room for negotiation on certain points. Don't be afraid to discuss terms that seem unfair or overly restrictive.
8. Assess the Training and Support Provided
The level and quality of training and support provided by the franchisor can significantly impact your success as a franchisee.
Evaluate the comprehensiveness of the initial training:
- Duration and location of training
- Topics covered (e.g., operations, marketing, financial management)
- Whether key staff members can also attend training
Check For Ongoing Franchise Support
Training is only part of the equation. Ongoing support from the franchisor is crucial for maintaining a successful franchise business. Ask about:
- Regular site visits from franchise support staff
- Access to operational and marketing resources
- Availability of help desk or support hotline
- National or regional advertising campaigns
- Local marketing support and materials
- Social media and digital marketing guidance
9. Develop a Business Plan
Even though you're buying into an established system, creating a business plan is crucial for your success as a franchisee.
Financial Projections
Develop detailed financial projection, including:
- Start-up costs
- Operating expenses
- Revenue forecasts
- Break-even analysis
Operational Strategy
Outline how you'll run the business day-to-day:
- Staffing plans
- Inventory management
- Customer service approach
Marketing Plan
Detail how you'll market your franchise locally:
- Local advertising strategies
- Community engagement plans
- Digital marketing tactics
Growth Strategy
Consider your long-term goals:
- Plans for expansion (e.g., multiple units)
- Performance targets
- Exit strategy
10. Seek Professional Advice
Before making a final decision, it's wise to consult with professionals who can provide expert guidance.
Franchise Lawyer
Engage a lawyer experienced in franchise law to:
- Review the franchise agreement
- Explain your legal rights and obligations
- Identify any red flags in the documentation
Accountant
Consult with an accountant to:
- Review financial projections
- Advise on the tax implications of franchising
- Help structure your business for optimal financial performance
Franchise Consultant
Consider working with a franchise consultant who can help you evaluate different franchise opportunities. There are a number of business coaches in the market with expertise in franchise systems – and they are often ready to give you a leg up.
The ActionCOACH Advantage
When considering a franchise opportunity, ActionCOACH offers one of the premier business coaching franchises in the UK.
With over 30 years of experience and operations in more than 80 countries, ActionCOACH offers a unique opportunity to create your dream business and lifestyle while making a significant impact on your local business community.
A Proven, Profitable Framework
ActionCOACH provides a comprehensive, tried-and-tested coaching system that has been successfully implemented by thousands of business owners worldwide. This proven framework allows you to:
- Step into a ready-made business with ongoing, world-class support
- Benefit from 30 years of testing and measuring across various industries
- Access a scalable asset with the potential to make millions
Comprehensive Support System
As an ActionCOACH franchisee, you'll receive extensive support to ensure your success:
- Intensive initial training through ActionCOACH University
- Ongoing coaching and mentoring from experienced professionals
- Access to proprietary business growth systems and tools
- Support from a dedicated franchise support team
- Connection to a global community of coaches and strategic partners
Ready to take the next step in your franchising journey? Speak to an ActionCOACH advisor today for personalised guidance on how you can build a successful business coaching franchise. Our team is here to answer your questions and help you explore the exciting opportunities that await you in the world of franchising.