Buying into a franchise can be a low-cost and low-risk way of dipping your toe into the business world – and if you choose the right one, it can also be incredibly lucrative.
This guide explores the financial aspects of franchising, from initial costs to potential returns, providing a detailed road map for anyone considering this entrepreneurial route in the UK.
How to Start a Franchise in the UK
Here’s a step-by-step guide to help you start a franchise right near you.
#1 Research Potential Franchises
Begin by identifying which type of franchise best suits your interests, skills, and financial capabilities. Consider various factors, including the brand’s market reputation, the demand for the product or service, and the level of support provided by the franchisor.
Attending franchise exhibitions, reading franchise-specific publications, and consulting existing franchisees can provide valuable insights.
#2 Secure Financing
If you don’t have the capital, you’ll likely need financing to cover the franchise fee and other start-up costs.
Approach banks and other lenders with a solid business plan and any offers of support from your franchisor. Established franchises often have relationships with financial institutions, which can facilitate easier access to funding.
#3 Meet with the Franchisor
Arrange meetings with the franchisor to discuss your interest and suitability for becoming a franchisee. This is an opportunity to ask detailed questions about the franchise model, expected outcomes, and the level of ongoing support.
Scrutinize the Franchise Disclosure Document (FDD) provided by the franchisor, which includes crucial details about the franchise’s legal, financial, and operational aspects.
#4 Legal Considerations
Consult with a solicitor who specializes in franchise law. Have them review all legal documents, including the franchise agreement, and discuss any concerns or negotiable points before signing.
Understanding your rights and obligations is crucial for avoiding future disputes.
#5 Training and Preparation
Upon agreeing to the franchise terms and completing the necessary legal procedures, participate in any training programs offered by the franchisor.
Training typically covers operational practices, staff management, and other business-related aspects. This is also the time to start setting up your business premises, hiring staff, and preparing for launch.
#6 Launch Your Franchise
Implement the marketing strategies discussed during your training to attract your initial customers. Grand openings, local advertising, and promotions can be effective tools to generate buzz around your new business.
Ensure you maintain consistent quality in line with the franchisor’s standards to build a strong customer base.
Breaking Down Franchise Costs
While tapping into a franchise is almost always cheaper than starting a new business from scratch, there will almost certainly be some costs involved.
When it comes to putting a price on getting hold of your franchise business, this can vary greatly depending on several factors. Let’s break down the different fees.
The Franchise Fee
Most franchise businesses will require you to pay an initial fee to secure your new business.
This fee is usually paid upfront on the signing of a contract and can vary widely depending on the business – in most cases, it will be between £500 and £300,000. Often, this franchise fee will include essential onboarding and training to help you get started, as well as guidance and support.
Some examples of UK franchise fees are:
Starbucks – £500,000
Tutor Doctor – £33,000
Local Eats – £6,000
Trendsignal – £3,597
As you can see, initial fees vary widely. While a franchise such as Trendsignal may be within reach, a Starbucks franchise will only be within the realm of possibility for those with considerable capital behind them.
Franchise Set-up Costs
Here’s an overview of the setup costs you’ll need to consider when starting a franchise:
Premises: Secure and fund a location, including rent and utilities, especially if open to the public.
Employee Wages: Budget for staff salaries if your franchise requires additional personnel.
Tools and Equipment: Purchase or lease necessary equipment; specific needs vary by franchise type (e.g., a van for a car valet business).
Products and Supplies: Acquire goods from the franchisor’s approved suppliers.
Legal Fees: Cover costs for legal advice to set up your franchise agreement.
Insurance: Ensure adequate coverage for premises, products, and employees.
Advertising and Marketing: Invest in promoting your franchise to attract customers.
Management Fees: Pay ongoing fees to the franchisor, either as a flat rate or a percentage of sales.
Renewal Fees: Budget for fees to renew your franchise agreement after the initial term.
Living Expenses: Maintain sufficient funds to cover personal expenses for the first 3-6 months until the business becomes profitable.
How to Pay For a Franchise
Now that we’ve gone through some of the costs involved, this may seem a little daunting, but it’s not all doom and gloom.
Franchisor support
Many forward-thinking franchisors help franchisees gain the funding they require to start their businesses. This can be invaluable for those who are entirely new to starting and running their own businesses.
Banking on success
If you’re buying into an established and well-known franchise, there’s a good chance that you’ll receive a warm reception from the bank manager when looking for funding for your business.
The simple reason for this is that an established franchise is a much safer bet for a bank than a new business started from scratch.
Government Grants and Loans
The UK government offers various support schemes for small businesses and franchises, including grants, loans, and sometimes even tax reliefs.
Specific programs like the Start Up Loans Company can provide low-interest loans to new business owners. Additionally, local councils often have grants and funding opportunities for businesses setting up in their areas.
Private Investors
In the UK, attracting private investors or venture capitalists is a common way to secure funding. This can be facilitated through platforms like the UK Angel Investment Network or through direct networking in industry events and seminars.
Equity investment from angels or venture capitalists not only provides capital but often brings valuable expertise and networks to your business.
Open Your Own Franchise with Franchise Local
At Franchise Local, we make it extremely easy to open your own franchise. Explore our dozens of industries, from Automotive to Travel, until you find your passion.
We’ve compiled a directory of the UK’s strongest franchises, including several low-budget options. As you begin your journey, we’ll keep you up-to-date with our knowledgeable blog. Learn how to open a franchise with no money at all or glean all the info you can from our Ultimate Guide.
Good luck with opening your first franchise. We’re here for you every step of the way.