How to start a franchise as a solo founder
By Tide Partner Joel Bissitt
Buying a franchise has always been a popular alternative to running an independent company.
This might be down to the oft-cited benefits that come with managing a franchise: an inherited tried and tested formula, lower set-up and running costs, and the chance to partner with and learn from successful business operators.
And the numbers back up the hype. According to a 2018 survey published by NatWest, the franchise industry contributes in excess of £17 billion to the UK economy and over 700,000 people work in this sector. Amazingly, over 90% of franchisees in the UK also report profitability, making the idea of buying a franchise even more attractive.
In this post, we’re going to break down exactly how the franchise system works, the benefits and drawbacks of running a franchise and how to operate your very own successful franchise business.
Table of contents
- How does a franchise model work?
- Is running a franchise business worth it?
- How do you get a franchise started?
- Wrapping up
How does a franchise model work?
Running a franchise means that you will be legally operating somebody else’s business using their ideas, processes, and overall business model.
The franchisor is the person who grants the license to franchise a company. For example, KFC is the franchisor when it agrees to allow an individual to run a franchise under its brand.
The franchisee is the person who buys the license to start up a new iteration of the already successful business.
Usually, a franchise agreement will mean that the franchisee will be allowed to use all the elements of the existing business that have been deemed ‘successful’. Following the above example, a franchisee of KFC will typically get to use the logo, the suppliers, the products and the company’s unique branded items in order to replicate the true KFC experience.
For KFC, the goal of this agreement is to expand their enterprise without needing to spend the money and energy on personally running every single operation. That said, each KFC franchise should be an exact replica of the corporate stores (i.e. they must serve identical pieces of chicken to the other locations). The franchise owners and staff should embody and buy into the KFC brand and market the brand using KFC’s materials.
In essence, the customers should never be able to discern if they’re eating at a franchise rather than a corporate restaurant. The food, ambience, and branding should be mirror images of each other.
Once you’ve passed a screening process and have been approved as a suitable business owner, your next step is to buy your new venture. There are several fees involved in both the initial purchase and the ongoing management of your franchise:
- The franchise fee: This is the initial up-front payment that you make to the franchisor in order to legally buy the franchise. This fee will often contribute towards your own personal training, help with choosing a suitable location for your business and assistance from the franchisor with sourcing and training your staff. The actual cost of this fee varies widely depending on the business sector your franchise operates in. It can be as little as £5,000 and as much as millions, according to a smallbusiness.co.uk article businesses pay an average of £40,000.
- Set-up costs: These are the costs of getting your business up and running. If you’re opening a fast-food chain, for example, these will be the costs associated with building and designing the restaurant, sourcing kitchen equipment, buying all of your supplies and inventory, such as food, drinks, condiments, napkins, utensils, plates, and so on.
- Ongoing fees: These are often categorised as royalties and can be thought of as continually paying the franchisor for the right to operate under their brand name and help them flourish. The ongoing fees can take many forms: a flat fixed fee, a percentage of profits, or a percentage of sales. You will often pay this fee biweekly or monthly. In addition to the right to operate your business, these fees cover the franchisor’s effort in supporting your franchise with ongoing training, manuals, product research and development, and more. In short, you are paying the franchisor for their ongoing support for your business.
- Legal and accounting fees: Buying a franchise means that you are operating under somebody else’s rules, so it’s important that you completely understand everything in your agreement and your responsibilities as the franchise owner. As you are responsible for ongoing fees and reports to the franchisor, hiring an accountant from the getgo will help you stay organised and keep track of your financial records.
Is running a franchise business worth it?
Starting your own business is an exciting endeavour, albeit one that comes with risks. When you start from scratch, you can’t ever be 100% sure that your business model will work. But, franchise owners enjoy a lower risk investment as they are buying into a business model with proven success.
There are, of course, some down-sides to running a franchise. Let’s take a look at some of the benefits and drawbacks of choosing to operate a franchise business.
- You get to be your own boss: Yes, you are working under somebody else’s business model, but you are still running the ship. You are responsible for key decision-making, operations management, brand expansion, marketing, and more.
- You don’t have to build your business from scratch: This massively reduces the risk of pouring your hard work and capital into a business endeavour only to see it fail. As you are buying a piece of an already successful enterprise, you are more likely to attain your own success.
- The playbook is handed to you: The keys to success are literally handed to you, which can feel like winning the lottery. From secret recipes to iconic branding, you get to buy a spot on a winning team and run the ball across the goal line. It’s a win-win for both you and the franchisor as you are supporting each other and making money together.
- You have to adhere to set rules: Sometimes a franchisor will demand a hand in running the business, which can feel like an infringement on your space. In other instances, the terms of the franchise license may dictate so many elements of the business that you as the franchisee lose any creative freedom. This can feel like you’re simply a cog in corporate’s machine, rather than an independently valued business owner.
- You don’t get to build your business from scratch: While some people love the idea of buying into a successful enterprise, others prefer to build one themselves. If you thrive off of creating a fresh idea and taking it to market, then buying a franchise may not be the right move for you.
- You may not receive the support you need: Some franchisors may not provide the training and support that you expect as a new franchise owner. Make sure that you do your due diligence and research to ensure that you are buying into a true partnership. A good franchisor will support you every step of the way, but not everybody follows suit, so make sure to ask tons of questions and speak to other franchisee’s before you sign any agreement.
If you are interested in running a business but prefer a risk-free option, the safety of developing a business within the protection of a known and trustworthy brand is certainly worth the cost of a franchise licence.
If you don’t mind taking risks and enjoy creating and nurturing your own ideas while having full control every step of the way, then buying a franchise may not be right for you.
How do you get a franchise started?
- The best place to start your franchise journey is with thorough research. Once you feel like you have googled all you can in the initial stages, and have used official resources such as the Quality Franchise Association website, it’s time to move beyond the computer screen.
- Talk to experienced business owners and visit successful franchises in the sector that you’re interested in buying in to.
- The next step is to make sure you know the terms of the franchise agreements inside out. Studying these agreements thoroughly will help you discern exactly what type of business fits best with your personality, goals and needs. For example, running a fast-food chain means you will be running a business that operates almost 24/7. Restaurants are also incredibly fast-paced and can be prone to a high staff turnover rate. If this sounds stressful to you, perhaps the restaurant industry isn’t the best choice.
- Once you’ve chosen the franchise sector and narrowed it down to a specific brand, the next step is to attend a discovery day with the franchisor. This is often a face-to-face meeting at the franchisor’s office where you have a chance to learn everything you can about the business. By meeting face to face, you get a vital opportunity to learn from the executive’s themselves what their company is about and how they operate. By the end of the day, you’ll have a much better idea whether or not this company is right for you and if you’re ready to buy in.
- If you do decide to move forward, the final two steps are to scout some locations and look at funding options. There are plenty of funding opportunities out there for franchisees, but you’ll gain an advantage if you’ve developed a sound business plan before applying—so make this a priority.
Looking at examples of successful franchises can be helpful
Big businesses like McDonalds or Pizza Hut are great examples to look at if you are planning on moving into an already popular franchise operation. However, there are plenty of other less known franchise opportunities that you can easily find by looking through a franchise database like Franchise UK.
Within the database, you’ll find several smaller franchises that give you the opportunity to make a profit whilst retaining much of your independence.
Here’s an example of a great franchise opportunity which offers a nice balance between independence and a financial safety-net. The Best Magic Mirrors is a highly successful photography business that offers on-site training, financial support and plenty of marketing materials to help you draw new business. Their successful model offers passive assistance while still allowing you to retain your individuality, as they offer a vast amount of creative freedom to make the franchise truly your own.
Franchises offer an attractive alternative to traditional business ownership. They are less risky and more likely to pay off than launching a business endeavour from scratch.
While you will have to give up some independence and play by somebody else’s rules, those rules are proven to work, which means you are joining a winning team.
And business owners and up and coming entrepreneurs are catching on to the most alluring part of franchises: the franchisee gets to pocket more of the profit.
About the author
Joel is the CEO at QFA and has been an entrepreneur since the age of 19, now 29 years on he has experience of many different industries including retail, catering, health & fitness, technology and sport. Joel has been a Franchisor twice & own’s Infinity Business Growth Network Limited, a franchise consultancy business which also owns several other leading franchise portals including Franchise UK, the UK’s largest franchise directory. Franchise UK was established in 2004 & generated over 18,000 franchise recruitment leads in 2018.
Quality Franchise Association ( QFA ) is a not for profit, franchise association UK. The QFA philosophy stands for Encouraging Franchising For All (EFFA). We provide free franchising advice & information to assist people seeking self-employment through franchising or businesses seeking expansion through franchising.
Photo by Afta Putta Gunawan, published on Pexels