Buying a franchise can be a smart way to step into business ownership—you’re not completely on your own, but it’s not exactly a shortcut either. The appeal lies in joining an already established brand, using a proven business model, and ideally, receiving ongoing support from the franchisor.
What Is a Franchise?
A franchise is essentially an arrangement where you (the franchisee) pay for the right to use another company’s (the franchisor’s) established business model and branding. You get to run your own business, but you’re operating within their system, not starting from scratch.
When you buy into a franchise, there’s usually an initial franchise fee—anywhere from £10,000 to £100,000, depending on the brand and sector. This fee covers your access to the established brand, extensive training, and the franchisor’s systems.
It’s not the same as going fully independent. There are rules to follow. The franchisor sets standards—think shop layout, uniforms, even how you greet customers. This consistency helps protect the brand’s reputation across all locations.
Role of the Franchisor and Franchisee
The franchisor provides the blueprint, the name, and ongoing support. They’ve already ironed out the major issues and bring their franchisor’s experience to the table to help you succeed. You should expect to receive training, marketing assistance, and operational advice as part of the package.
Your role as the franchisee? Stick to the system, but also manage the day-to-day running—hiring staff, local promotions, and everything in between.
There are ongoing royalty fees to consider, usually between 5-10% of your revenue. This money goes back into the franchise system to maintain support, marketing, and development.
It works best when everyone knows their role. If you can follow their proven business model but bring your own energy and management skills, you’re well placed for success.
Types of Franchise Opportunities
Home-based franchises are popular for their lower start-up costs and flexibility. These might include cleaning services, tutoring, or consulting—businesses you can run from your own home.
Retail franchises are the classic shops, restaurants, or service businesses with a physical presence. They require a bigger initial investment but can offer greater revenue potential.
Business-to-business franchises focus on serving other companies—think commercial cleaning, office equipment suppliers, or business coaching.
The UK franchise market offers a wide range of opportunities to suit different budgets and skills.
The right franchise for you should match your interests, skills, and what you can realistically afford.
Evaluating Franchise Opportunities
If you’re considering buying a franchise, it’s crucial to dig into the details. It’s not just about liking the brand; take your time to check that it aligns with your financial goals and day-to-day preferences. A bit of healthy scepticism can save you from costly mistakes.
Buying a franchise is a serious commitment, but with the right preparation, it can be a rewarding way to start a new business.
Conducting Due Diligence
Doing your due diligence is like your homework before signing on the dotted line. Start by digging into the franchisor’s track record, reputation, and financial stability. Have a proper chat with current and former franchisees—they’ll give you the honest lowdown on what it’s really like running the business, beyond the polished brochure.
Make sure there’s genuine demand for the franchise’s goods or services in your area. Ask yourself:
- Is there a real market here, or am I just hoping?
- Does demand fluctuate with the seasons?
- Can this business grow, or will I hit a ceiling quickly?
Put together a thorough business plan covering income, outgoings, and when you might break even. This isn’t just ticking a box—it helps you spot any weak spots and see if the numbers really stack up.
It’s wise to get a franchise solicitor to review all the legal documents. They’ll pick up on any red flags that might escape your notice.
Reviewing the Franchise Disclosure Document
The Franchise Disclosure Document (FDD) is a hefty legal file the franchisor must provide. Don’t just skim it—there’s plenty in there that matters.
Focus on these key sections:
- Item 7: What are the true upfront costs?
- Item 19: Are the financial results realistic, or just wishful thinking?
- Item 20: Who else owns one franchisee, and who’s left?
- Item 21: Is the franchisor financially sound?
The FDD also lists any lawsuits, bankruptcies, and all fees you’ll be responsible for—royalties, marketing contributions, and more. Check whether you get exclusive territory or if you’ll be competing with neighbouring franchisees.
Take your time with this. If the legal jargon makes your eyes glaze over, get a franchise lawyer to walk you through it and highlight anything concerning.
Financial Considerations When Buying a Franchise
Money matters—a lot. Before committing, look carefully at both the upfront and ongoing costs. Otherwise, you might find yourself deeper in than you bargained for.
Initial Investment and Franchise Fees
The franchise fee is your entry ticket—a lump sum, usually between £10,000 and £100,000, depending on the size of the brand. Remember, this fee is non-refundable if you change your mind.
But that’s just the start. You’ll also need to budget for:
- Property costs—buying or leasing premises
- Equipment and shop fit-out
- Stock and inventory
- Insurance
- Hiring and training your staff
- A cash buffer to cover a few quiet months (three to six months is sensible)
Ask the franchisor for a full breakdown of costs, but double-check with current franchisees—sometimes reality is pricier than projections.
Ongoing Franchise Fees and Royalties
Once you’re up and running, you’ll pay royalties—usually between 4% and 12% of your sales, whether you’re making a profit or not. This covers the use of the brand and ongoing support.
Other regular costs might include:
- Marketing fees (often 1-4% of sales)
- Technology platform charges
- Training updates
- Inventory purchases (sometimes you’re tied to their suppliers)
Read the franchise agreement carefully. Some franchisors require minimum royalty payments even if sales are low, which can sting during slow periods.
Assessing Return on Investment
When it comes to assessing the return on investment, it’s essential to do your own homework rather than relying solely on the franchisor’s averages. Speak directly to several franchisees to find out if the financial projections they were given matched their real experiences.
Keep an eye on key financial indicators such as:
- Break-even point: How long before you start making a profit?
- Profit margin: What remains after covering all expenses?
- Cash flow: Will there be enough funds to keep the business running smoothly?
Don’t just take the franchisor’s word for it—chat with a range of franchisees, including those who might not be hand-picked by the franchisor. Build both best-case and worst-case financial scenarios to avoid any nasty surprises. If the numbers make you feel uneasy, it’s wise to seek advice from a lender or financial adviser who has experience with franchise businesses before making any commitments.
Legal and Contractual Obligations
Entering into a franchise agreement involves a significant amount of legal paperwork. Understanding your rights and obligations can save you considerable stress and money down the line.
Understanding the Franchise Agreement
The franchise agreement is the cornerstone contract between you and the franchisor. Take your time with it and get a solicitor with expertise in franchise law to review everything thoroughly.
Key points to scrutinise include:
- Franchise fee and royalty payment structure
- Duration of the agreement and renewal terms
- Territory rights—do you have exclusivity in a specific area?
- Operating guidelines and quality standards
- Brand and intellectual property—how you’re allowed to use trademarks and systems
You’ll be responsible for protecting the brand’s reputation, using their trademarks correctly, and following their systems to the letter.
Be vigilant about clauses covering exit strategies, selling your franchise, and any restrictions after you leave. Some of these conditions can be more stringent than you might expect.
Partnership, Rights, and Responsibilities
It’s important to remember that franchising is a contractual relationship rather than a partnership. The roles and responsibilities are clearly defined.
As a franchisee, your duties typically include:
- Paying all upfront and ongoing fees
- Adhering strictly to the franchisor’s established business model
- Maintaining brand standards
- Attending mandatory training sessions
- Submitting financial reports and other required documentation
In return, you’ll benefit from:
- The right to use the brand name and trademarks
- Access to the franchisor’s proven systems and support
- Training and marketing assistance
Should disputes arise, the franchise agreement will outline how these are to be resolved. Common issues include misrepresentation, breaches of contract, or unfair trading practices. Keep in mind that UK competition law may impact aspects such as territory exclusivity and pricing policies.
Steps to Franchise Ownership
Becoming a franchise owner is a process that takes time and involves several important steps. Most franchisors follow a structured approach, so you’ll have a clear idea of what to expect along the way.
Application and Approval Process
First up is the application. You’ll need to share details about your finances, work history, and what draws you to the franchise. Most franchisors have minimum requirements for net worth and available cash.
Next come discovery days—these are essentially meet-and-greet sessions with the franchisor’s team, giving you a deeper insight into the business and its culture. It’s your chance to ask the tricky questions and get a real feel for what’s involved.
You should also expect background and financial checks, so have your bank statements, tax returns, and credit reports at the ready. If you pass these, you’ll receive the Franchise Disclosure Document (FDD) to review carefully.
It’s essential to go through the FDD with a franchise solicitor. If all looks good and you’re still keen, you’ll sign the franchise agreement and officially become a franchisee.
Training and Support
Most franchisors provide comprehensive training, typically lasting one to four weeks. This covers everything from running the business day-to-day to understanding the brand’s expectations and core management skills.
You’ll get familiar with the products or services, customer service standards, and the systems you’ll be using daily. Sometimes you’ll receive on-site training at an existing location, which is invaluable for seeing the operation in action.
Support doesn’t stop once training finishes. You might benefit from:
- Visits from dedicated support staff
- Access to a support hotline
- Ongoing training sessions to keep skills sharp
- Assistance with marketing materials
- Use of proprietary technology and software
However, the level of support can vary quite a bit. It’s wise to chat with current franchisees to find out how much help they actually received, especially when challenges arose.
Transitioning to Franchise Ownership
After training, it’s time to launch your franchise. You’ll need to secure a location that meets the franchisor’s criteria—considering factors like size, foot traffic, and target customers. Some franchisors will assist with site selection and lease negotiations.
Then it’s all systems go: purchasing equipment, setting up the premises, and recruiting your team. The franchisor should provide checklists and timelines, but ultimately, you’ll manage the finer details. Hiring the right people is crucial—they can make or break your local reputation.
Before opening, most franchisors conduct a final inspection to ensure everything meets their standards. They might also help with marketing your grand opening to get the word out.
The early days can be challenging—you’re putting all that training into practice and learning on the fly. Keep in close contact with your franchisor’s support team and connect with other franchisees. Their advice, especially the honest, unfiltered kind, is worth its weight in gold.
How We Can Help
At Diamond Accounts, we specialise in guiding prospective franchisees through the often complex world of buying a franchise. Our team of experienced accountants truly understands the unique financial landscape of franchising—it’s a niche all of its own.
We carefully examine the franchisor’s disclosure documents and financial statements, so you get a clear picture of what you’re stepping into. While some franchises may look appealing on the surface, our experts know how to identify those hidden pitfalls and red flags that could otherwise go unnoticed.
Here’s how we can support you:
- Comprehensive financial assessment of franchise opportunities
- Thorough due diligence when evaluating franchisors and their business models
- Tailored business plan development specifically for your franchise venture
- Detailed cash flow projections to keep your finances on track
- Tax planning advice tailored to the franchise industry
We’ll be by your side throughout your entire franchise journey—from your initial research right through to the final negotiations. Our accountants can help you determine whether the franchise fee is reasonable and if the ongoing royalty payments align with industry standards.
You don’t have to face this alone. We can also introduce you to franchise-savvy bankers who understand the ins and outs of franchise financing and may be able to offer you more favourable loan terms than typical business lenders.
Get in touch for a friendly chat about your franchise ambitions. We’re here to help you move forward with greater confidence and far less guesswork.