The pros and cons of franchising in 2021

by Oct 3, 2021Running a business

Franchising is a tried-and-tested model in retail and fast food, but there are lots of things to consider before you decide whether it’s worth starting your own franchise. 

First, is 2021 or 2022 the right time to start a new franchise? There’s certainly been a spike in demand for certain franchises during the pandemic, but how long will it last?

Second, what are the best franchising trends to tap into now or next year? Could it be something that capitalises on people spending more money on doing up their homes or gardens, or perhaps a food franchise?

Whatever retail or fast-food franchise you might be thinking of, you need to weigh up the pros and cons while also considering the potential tax implications of starting a franchise in 2021.

Let Diamond give you a helping hand with all of the above to enable you to make an informed decision.

Pros & cons for operators

For starters, the biggest franchises seldom fail and with that comes far less risk, compared to starting a brand new business from scratch and the time it takes to build that up, both in terms of reputation and profitability.

Depending on what you buy into, you can usually cash in on the franchise’s brand while being your own boss. But don’t be lulled into a false sense of security; there are cons, too.

Quite often, you need to commit large amounts of cash from the outset. This in turn means operating a franchise is a long-term commitment and not the sort of job you can ditch after a year.

You need to be content with handing over a chunk of your profits to a franchisor every month, while you should be under no illusions about the long hours often involved with getting a franchise up and running.

Tax implications of franchising

There are no specific tax rules that apply to franchises in the UK. While that might sound like a good thing, it essentially means franchisees can expect the same tax treatment as incorporated or unincorporated businesses.

For sole traders, income tax, National Insurance and VAT come into the equation, plus corporation tax for limited companies. When you eventually dispose of your business, you may also need to plan for capital gains tax.

Like starting any other business, you should engage with us at the earliest opportunity so that we can provide expert tax-planning advice to suit your circumstances.

Is it worth starting a franchise?

If you have disposable cash lying around and would like to make it work for you, then starting a franchise could well be worth it. A lot will depend on your circumstances and the type of franchise you want to operate.

Feel free to get in touch with us if you would like a specialist franchise accountant to run you through your options and help you to understand the pros and cons before you commit any cash.

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