If you’re considering buying a franchise there are a number of pros and cons. According to the findings of a study released earlier this year, franchises are becoming increasingly popular.
The Geek Retreat report shows that almost one-third of business owners have considered buying a franchise. Whether they are already in business or launching a start-up, entrepreneurs said they considered a franchise because it’s a ‘proven business model’.
But what is franchising? And is it a good direction for your business? We’ll take a look at what you need to know.
Why buying a franchise is a good idea
There are many reasons why a franchise can work for you. For example, food business franchises can make sense. Buying a Costa franchise might work out better than setting up your own coffee shop. So why is a franchise is a good idea…?
An established brand
We’ve mentioned Costa above! Well, that’s one reason to buy a franchise – people already know the brand. Franchise brands usually have an established reputation. It could take years for you to build your business’s reputation, but a franchise has already achieved that. Franchisees usually enjoy the goodwill of established brands. And that can mean you have customers from the first day.
A proven business model
Before a franchise is offered, it usually undergoes testing. That means processes have been tried and tested and proven to work. You will benefit from learning from the successes and failures of the franchiser, the company offering the franchise.
Support and training
Running a business can feel solitary. If you’re a director or sole trader, you’re usually learning from your own mistakes daily. With a franchiser, support is part of the package. You’ll also be given training about leadership and operations as well as help with marketing. It’s in marketing that you can see the real value of a franchise. Advertising your business is difficult to get right and you can waste money experimenting with different messages. A franchiser will already have tried this and will already have a marketing plan and messages in place. Such support is all part of your fee and is an invaluable resource, whether you’ve run a business before or are a new entrepreneur. For example, in the North East, Lingotot has a proven track record of offering award-winning support and training.
Why buying a franchise may not be a good idea
So with all the positives, you might be thinking it’s time to sign your franchise agreement. But before you do, there are a number of issues to think about first…
It’s not cheap
Upfront costs when buying a franchise can be quite high. For example, latest figures show you’ll need to invest around £170,000 for a Papa Johns franchise. That’s before you pay rent, rates and wages! But the investment does, at least, cover the cost of your oven! You need to work out when you can expect a return on your investment and whether starting up independently will be better for you.
Little freedom
A franchiser can prove they have tried different marketing messages – so you have to stick to them! That means you have little freedom to try new ideas. You will have to stick to branding and operational rules. If you’re an independent person, you may struggle with the restrictions of franchising.
The knock-on effect
If the franchise you’re buying attracts negative publicity anywhere in the world, your business might be affected. No matter how good you are at running your franchise, its reputation is likely to be tarnished if the franchiser makes a mistake. The problems might blow over, but while the franchise owner may have plenty of contingency funds, you might not.
Ongoing costs
Setting up your own business always means there will be ongoing costs. But whereas running your independent operation attracts fees such as rent and utilities, franchises include many more. Ongoing royalties and fees mean you will have additional cost pressures to consider. Such expenses can mean the profitability of your business is reduced compared to an independent model.
Will I need an accountant?
Whether you’re running a franchise business or an independent one, using an accountant is advisable. At Concept Accountancy, our founder is a Chartered Accountant who understands managing debt, payroll and cash flow – all necessary when it comes buying a franchise. And if you decide to be independent, it’s also wise to speak to an accountant. They can help you understand the costs and compliancy issues that come with running a business and minimise risk. And they also save you money in the long run.
For more details, contact our team today. It’s a free chat without any obligation, so fill in the form below and we’ll be in touch.
