Many people form their first company to run a franchise business. Here at MachFast we love helping people start and form companies. Many are curious about the franchise market in the UK and how they should think about it. We hope this article helps you to learn about the franchise market.
Have you ever wanted to own a McDonalds? You actually can. It is a franchise business. If you ran your own, you would be called a franchisee. Being a franchisee can be a very profitable career. It entails lower risks than building your own business from scratch. Many of the biggest High Street shops, restaurants and fast food chains are actually franchises. They are owned and operated by small business owners. The biggest names that you have likely seen on the High Street are McDonalds and Subway.
The biggest benefit of running a franchise business is following a time-tested model with the backing of a larger organization. Often, large franchises offer funding and logistics capabilities that a small business owner would not be able to access on their own. One of the biggest costs in setting up your own business is marketing. The great news about franchises like McDonalds is that they spend millions building the brand in the market place and driving customers your way. So you are half way done when you get going with a franchise.
McDonalds or Subway are called franchisors. Many well established franchisors have lots of systems, training programs, branding in place to get you going fast. They may even help you with accounting and stock control systems. A franchisor may even offer financial assistance to get you going- things like initial start-up costs, and organizing your first marketing & advertising campaigns. Often franchisors will also pick the best locations to start your franchise- shopping malls, high streets etc… They want you to do well selling their stuff. The other great benefit could be easier access to bank financing for your business. Banks tend to approach franchisees more favorable than the zero-to-hero startups.
There is even a trade association, called The British Franchise Association (BFA) – you can visit them here: https://www.thebfa.org/.
However, there is no free lunch! Franchisors charge upfront costs if you want to license their franchise. Franchise costs can vary significantly running into tens of thousands and even hundreds of thousands pounds. For example, according to the NatWest BFA Franchise Survey 2015, the average total start-up cost for a hotel and catering franchise is typically around £107,000, whereas the average cost for a personal services franchise is just £42,000. Franchisedirect.co.uk has a fantastic article on the potential costs involved. Check it out here: https://bit.ly/2UgwaMR.
It is always very very important to do you due diligence and research before you dive into a franchise business! Franchisors will charge royalty fees on the on-going basis. These fees come out of your GROSS REVENUE – so this may be very tough for low margin franchise businesses. You will still need to cover your overheads.
Running a franchise is hard work. You are also not your own boss 100%. You must follow Franchisor’s policies and procedures. You are subject to their regulations and any negative publicity that has nothing to do with you, but effect the brand over all. In summary, there is no free lunch and you will still need capital to get going and you are not 100% free as a bird as an entrepreneur.
Franchise businesses have been the bedrock of American and British economy for many generations. If you would like to see how it all started check out this great film, The Founder. It tells the story of Ray Kroc- the founder of McDonalds’ franchise business.
And of course, we are happy to help you form your company to get your franchise business going! Just download our apps here: https://machfast.com/franchise.