Author: Esther Greenwood
City Business Library, Business Librarian/Advisor
An authorization granted by a government or company to an individual or group enabling them to carry out specified commercial activities, for example acting as an agent for a company’s products.
For some people, franchising can be an attractive way of starting their own business by allowing you to buy into a business that already has a proven track record in its market.
Franchising is becoming an increasingly attractive business model; the Business Franchise Association states that the number of franchisee-owned business in 2018 was nearly 50,000. Over 710,000 people are employed in franchising in the UK and 97% of franchisee-owned units reported profitability.
Franchises can be found in all business sectors including food, education, healthcare and property maintenance and include well known businesses such as McDonald’s, CeX, Subway, Molly Maid and Kumon tutoring services.
How does a Franchise work?
Franchisees pay an initial fee for a licence to operate the business and then an annual management fee. In return the franchisor provides proven business systems, marketing and know-how and continuing support to the business.
What are the costs involved?
The cost of initial fees can vary considerably from £3,000 to over £500,000. Some franchisors require that the franchisee can pay all the fees unencumbered, but others will accept up to 70% of the fees being financed by a bank loan. If the business model is viable banks will consider lending finance for the purchase and often have specialist teams looking at franchise finance. Franchisees are responsible for the running costs of the business which need to be factored into business planning and start-up costs.
Who is in control?
The owners and and operator is called a franchisee, however the control of the brand, products and marketing reponsibility stays with the franchisor to control the quality and standards of the franchise.
Where can I find out about Franchises available?
Franchise exhibitions such as the International Franchise Show are good places to explore opportunities and talk to franchisors and other franchisees about their experiences. Before taking on a franchise it is important to ensure that the product or service is viable and that you can earn your living from it. Legal and accountancy advice should be sought if you’re not confident in these areas and advice from your bank if you’re considering getting a loan to finance the business.
City Business Library have a number of free resources to help you if you’re thinking about investing in a franchise or franchising out your business. Research is a crucial at this stage!
COBRA is one of City Business Library’s databases which give you a step by step guide to starting a business (available remotely with our free Access Membership)
Another useful database is Fame (available remotely with our paid membership), you can look at the finances of any franchise that is registered as a limited company and our market research databases will show if the is sector growing.
The Library also keeps a large range of books and magazines, Business Franchise, Making Money and Franchise World will give you a really useful articles from experts, listings of franchises for sale in every market sector and the initial fees charged. These magazines will also help demystify some common franchise terminology.
If you still feel unsure, come into the library and have a chat with one of our business librarians who are also business advisors who will be more than happy to sign post the way for you.