How to buy a franchise business

Whether you’ve found a franchise you’d like to invest in, or you want to know more about this type of business model, it pays to know how to buy a franchise properly before handing over any money.

Buying into a franchise enables you to build a business without having to start from scratch. It’s essentially a plug-and-play company.

The franchisor (the firm selling the franchise) provides ready-made and established structures, processes, and supply chains.

You’re also buying into a proven service or product offering. Businesses don’t often franchise unless they have a model that has been proven to be successful.

However, while you’ll pay for this support and fast-track to sales.

The franchiser will want investment upfront and in the form of royalties to access their brand, customers, and guidance.

Why buy a franchise?

There’s a whole host of reasons why you might want to buy a franchise.

Franchises are an established and proven business model. They come with a recognisable brand, including pre-established credibility, authority, and customer relationships.

This provides relative peace of mind for those seeking business success, with less risk involved as you’re not starting from scratch.

Franchisees are given a leg up via access to:

• Support

• Networking

• Training

• Technology

• Other resources offered by the franchisor

These benefits wouldn't be instantly available if you were to set up your own separate business.

Overall, when buying a franchise, you're not starting from square one. As a result, there's rapid scalability and growth potential, and fewer risks compared to a start-up.

What to look out for when buying a franchise

That's not to say that buying into a franchise will be an instant and guaranteed success.

It's important to cast a business-savvy eye over the franchise from the start — before you sign anything.

As with any business venture, it is important to write a business plan, even when buying a franchise. Otherwise, you may face pitfalls later down the line.

Here are 6 things to look out for when buying a franchise:

1. Conduct your due diligence on the franchisor

It's good to ask for clarification on at least three points.

• Does the franchisor have a good track record when it comes to revenue and business growth?

• Do they have a good reputation in the industry?

• How are their existing franchises doing?

2. Understand the investment

You've got to spend money to make money.

Ensure you understand the total investment required to make the franchise successful, including ongoing fees, marketing expenses and operational costs.

3. Go through the franchise agreement with a fine-comb

Having a clear understanding of the franchise terms, obligations, and restrictions is essential. It will help you understand your rights and what support is available to you from the franchisor.

Additionally, reading through the agreement will give you an understanding of any territory rights and restrictions.

These may impact where you can market your business, so it’s important to know this from the offset.

4. Analyse the franchisor's technology infrastructure

Check the franchise uses modern, efficient technology systems and operations, and that they're committed to innovation and adaptation.

5. Investigate the franchise's marketing strategy

Check a robust marketing plan is in place and that you'll have access to marketing support. Paying for a franchise means you should get more support than going into business on your own.

6. Speak to current and former franchisees

No one knows the business better than those already running it.

Ask current and former franchisees about their experiences and perspectives to glean insights on potential challenges and overall satisfaction.

How to buy a franchise business

If you’ve got the money or can borrow it, buying into a franchise can give you:

• A brand

• A business

• A flow of paying customers

All this can happen within months, sometimes less.

Before you hand over the cash, get a full picture of what you’re purchasing:

1. Do your research

Research the market you’re considering buying a franchise in as if you were starting your own business from scratch.

Read trade magazines and websites, speak to franchise consultants, and visit trade fairs.

2. Speak to other franchise owners in the trade industry

This is a simple but incredibly powerful way to get insights into what running a franchise is really like, from day-to-day activities to revenue.

Visit franchises and speak to the owners directly. Pay them for their time if you have to — it will be well worth it.

3. Speak to your bank

Whether you’re buying into a franchise with cash or need a loan, banks usually have franchise specialists you can speak to for advice.

They may even have one in your local branch — pop in and check.

4. Get the franchise information pack

Any reputable franchisor will provide one of these. It does what it says on the tin, outlining the offering alongside key facts and figures.

5. Arrange an interview

Remember, you’re in control here. The franchisor wants you to invest, so don’t be afraid to make the shots.

• Request a meeting to see them in person to discuss the opportunity

• After the interview, you should be given an award pack

• This document goes into further detail on the purchase

• Make sure you carry out all due diligence

Follow these steps and you’ll be in a good place to make an informed decision on whether to purchase a franchise or not. Remember, the decision is ultimately yours to make.

Our advice is to always seek more trusted advice than you think you need. This way, you’ll get the fullest picture possible.

Benefits of buying a franchise

1. It’s a ready-made business

The product or service has been tried and tested. It’s already established both in terms of market relevance and brand appeal.

This means you’re buying a business that has the potential to hit the ground running and start making money instantly.

2. Reams of market data and insight to tap into

The franchisor will typically have been running their business for several years. This means they’ll have invaluable data on what works well and what doesn’t.

Data will include marketing, locations, and demographics. Access to this data means you achieve success sooner.

3. You don’t need as much business experience

A good franchisor will provide a thorough framework within which to run the franchise you purchase. This includes everything from day-to-day activities to sales and staffing.

The best franchises also offer training to help supplement your skills and abilities.

4. You’re not in it alone

With a startup trade business, it’s all on you to get the business up and running from nothing. In contrast, franchises offer the support of the franchisor.

This typically includes help across all areas of the business on an ongoing basis. In addition, it will likely include training and support from other franchisees.

5. You usually get exclusivity

Usually, a franchisor will give you the exclusive right to run a franchise in a geographical area. This means they won’t franchise another branch of the brand within that area, so you get all of the customers.

Remember that competition from other brands outside of the franchise will still be there.

6. Securing funding can be easier

Lenders like low-risk. An established franchise is less of a punt than an unproven startup idea, so is more likely to secure funding.

Also, larger franchisors often have arrangements with banks and lenders to help new franchisees secure funding.

Disadvantages of buying a franchise

1. You have to pay upfront

As an example, when starting a plumbing business from scratch, you can bootstrap or fund it at a low level as it grows.

In contrast, franchises need tens of thousands of pounds before you’ve opened the door to customers.

2. Less control over the business

While you may own the franchise, you don’t own the business as a whole. This means you’ll be subject to decisions and directions imposed by the franchisor.

This can include restrictions on promotions, how you sell your products or services, mandatory suppliers, and maintaining certain operating hours.

3. Potential for conflict

Reduced control over your business can lead to a potentially poor relationship with your franchisor, as decisions are taken out of your hands.

You have to go into a franchise purchase with eyes open on this and expect to have a reduced say.

4. You have to share the profits

While some franchisors don’t require royalty payments, the vast majority do. You’ll typically need to make these every month, often in line with a percentage of the profits you make.

5. Your reputation is not entirely in your hands

You may deliver excellent customer service, receive 5-star reviews, and get a healthy flow of return business and recommendations. However, it only takes a poor decision at the franchisor level to undermine customer trust and turn them away from your business.

Your reputation is also somewhat in the hands of all your fellow franchisee owners, particularly local ones.

6. Renewal isn’t guaranteed

Renewal of your franchise is totally at the discretion of the franchisor. You could work for years to build up a successful business, only to have it taken off you and given to someone else.

That’s a worst-case scenario. Often a franchisor will be happy to renew if the franchise and the franchisee are on good terms. We’ll talk about this in more detail below, as it’s a big one.

Renewing a franchise

We can’t stress how important it is to establish renewal terms before you sign anything.

No franchisor will guarantee a renewal. However, a good one will give you parameters to work within and measures to meet to increase your chance of securing a renewal.

This is usually all about being on a ‘good standing’ with the franchisor, which will be defined in your franchise agreement.

This typically means:

• Being up to date on payments

• Meeting minimum customer service levels (which can include review site scores)

• Updating premises if needed

There’s often a renewal fee to pay. With many franchises, you’ll also need to notify the franchisor of your desire to renew within a predetermined time frame.

Franchise costs and returns

The cost to buy and run a franchise varies wildly between brands, markets, and even locations. The average cost and return numbers are impossible to calculate.

However, you can get a clear picture of these by asking the franchisor and existing franchisees the following questions.

What questions to ask when buying into a franchise

• How much is the initial purchase fee?

• What’s the royalty percentage and how frequently do I have to pay it?

• What kind of profit can I expect? Remember to ask for typical new franchise returns as well as established ones

• Do you have actual return figures? Heading slightly deeper here, ask for real and recent returns from several franchises

• Is there a mark-up on stock bought from the franchisor?

• What are the typical additional charges over a year? Here, you’ll want to know about marketing, promotions, AGM attendance, training, etc.

Buying a franchise summary

The bottom line when considering buying into a franchise is to do your research. Treat the purchase like you’re launching your own company from scratch.

Look into every angle of the market, franchisor, customer, industry trends and how the wider business has been performing.

Remember you’re in control of the decision. The franchiser wants your money both upfront and through royalties. Make sure that buying their franchise is the right move for you for the period of the agreement.

Understand the renewal terms before signing anything. Ask the questions in this guide to give you a good picture of what you’re buying into.

Do this and you’ll be set to run a successful business, loved by customers and supported by a solid franchisor.

How to buy a franchise business FAQs

How much money does it cost to buy into a franchise?

It varies depending on the franchise and even the location you want to operate in. You’ll pay an upfront cost, usually in the tens of thousands. And you’ll also pay ongoing royalty fees which are typically a percentage of the profits you make.

If you’re serious about buying into a franchise, you should reach out to the owner for an initial meeting.

Can you run a franchise from home?

Yes. Many service franchises don’t require a physical shop or storefront. Just be aware that you’ll need to register the franchise at your home, which effectively makes it a business property.

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