Five essential factors to consider before buying a franchise in the UK

Buying a franchise is a big financial commitment. Read our article by this industry insider to make sure you are asking the right questions.

Five essential factors to consider before buying a franchise in the UK

It is a well-known fact that franchising offers a great alternative to starting up your own business. According to the most recent NatWest BFA survey in 2018, there were 48,600 franchise operations in the UK, contributing an estimated £17.2 billion to the UK economy and giving employment to 710,000 people, so we know franchising works, and very successfully, but before you invest there are at least five big questions you need to ask yourself.

Is there a market for the service in your area?

Here’s a true story that perfectly illustrates this point. Before he came to us (PS: he now owns multiple territories and is one of our highest-performing franchisees), one of our franchisees, let’s call him Roger, used to own a bird control franchise.

Roger had done his research about this franchise and knew that their franchisees were very busy, particularly removing seagulls, which can cause a lot of damage to homes and businesses. Even better, Seagulls are protected under the Wildlife and Countryside Act, which means that it is illegal to harm or kill them without a specific license, so he knew he’d be qualified to remove them. Happy days. Roger signed on the dotted line and bought his franchise.

Sadly, a few months later his business failed. Why? Because Roger’s territory was slap bang in the middle of the country, without a seagull for miles. No seagulls = no business.

So do your research, and make sure there is a call for the business not only nationwide, but also in the territory you will be buying.

Can you sustain yourself financially for up to a year before your franchise begins to make money?

When you buy a franchise, you are starting from nothing (unless you buy a franchise that is already running, or a ‘resale’ as we call it in the trade, often a very wise move.) 

Yes, we will give you all the tools and training you need to make a success of your business, but you are starting with no customers, no leads, nothing. You will need liquid capital available to pay your living costs for a decent amount of time, at least six months, until your business becomes profitable. Do you have access to that kind of cash? If not, are you willing to borrow it as part of the loan to buy the franchise? Of course, the more you borrow the more you must repay, with interest so think carefully about how you will structure this financial hurdle.

Will you enjoy what you’ll be doing?

It is so important you choose a franchise that you at least think you are going to enjoy running. How do you make sure you will? By doing plenty of research. Start here, on the internet, read, compare, contrast, make notes and apply for franchise brochures, as you read something will probably jump out at you. If you don’t feel the spark of excitement, probably best to put it on the ‘no’ pile.

There are some obvious ones, if you hate driving or have a bad back, don’t choose a van-based franchise when you will be in and out of your vehicle all day. If you hate being cold and wet, make sure you choose a franchise where you won’t have to work in those conditions. If you aren’t very strong, don’t buy a franchise that relies on you lifting heavy goods/boxes. We understand you may be looking for a change but be realistic too!

Once you have a few you are really interested in, give them a ring and get booked on a Discovery Day. This is an opportunity for you to really find out more about the franchise, and spend time with the head office and probably a franchisee. This should help you whittle your list down to something that you’ll really enjoy.

Is the franchise reputable, profitable, ethical and sustainable?

This is actually one of the most important questions you need to ask yourself. Do plenty of research, ask questions that may appear probing, but in all honesty, you are entitled to have the answers to.  After all, you are likely to be handing over many thousands of pounds to these people, you need to trust that the franchise you are investing in is built on firm financial and ethical foundations and isn’t likely to go bust within a year. Read this previous article of ours ‘Killer questions a franchisor won’t want you to ask – but you absolutely must’ to make sure you go in armed with the right questions.

Will you be able to sell your franchise for a reasonable price at the end?

Although selling your business, before you’ve even bought it is probably the very last thing on your mind, it is wise to look at the full picture from day one. Good franchisors will discuss your exit strategy with you from early on, so be prepared.

No franchisor can guarantee the sale of your franchise however it is wise to ask about previous sales, how long they have taken to go through, who they sold to (in-house or an external buyer?) Does the franchise put any restrictions on who you can sell to? Do they have to vet and approve the new buyer? Do you have to offer it to existing franchisees first? If you discover a franchisee has been trying, unsuccessfully for two years to sell their business then this is a definite red flag.

In conclusion, buying a franchise can be a successful way to start a business in the UK, but it is essential to consider some important factors before investing. Firstly, market research is vital to ensure that there is a demand for the franchise both nationally and in the territory you plan to operate. Financial considerations must also be considered, as it can take up to a year to establish a new business and become profitable. Also, choosing a franchise you enjoy and can sustain long-term is essential. It is also important to thoroughly investigate the franchise you are considering, looking at its reputation, profitability, ethics, and sustainability. Finally, it is necessary to consider exit strategies and how easy it will be to sell your franchise if required. By considering these factors, you can ensure that your investment in a franchise is successful and rewarding.

Darren Taylor
Darren Taylor