Please note that this article is intended for educational purposes only and should not be deemed to be or used as legal, employment, or health & safety advice. For guidance or advice specific to your business, consult with a qualified professional.
Not every small business is about unique, show-stopping ideas. Though the concept of the entrepreneur is underpinned by a ‘Eureka!’ moment, that’s simply not always the case in reality. If you want to give business ownership a go but don’t have an idea that’s ready to market, or if you just want to operate within a safety net where support and reputation are already built-in, a franchise could be a great choice.
What is a Business Franchise?
Simply put, a franchise agreement is when a larger company ‘leases’ its name, products, trademarks and services to a third party who then offers these to the public in return for a cut of the profit. While this may seem like the brand is employing a person as a location manager, the responsibility of customer service, financial management and product management is all down to the franchisee. It is a contractual agreement at the end of the day. Franchising is already a common way to expand businesses in North America, and is growing in popularity in the UK. The length of franchise licences varies, but there are usually always options to renew.
Franchisee vs Franchisor
A franchising business, also known as a ‘franchisor’, is the original owner of the brand, services and products in which a ‘franchisee’ can invest. This franchisee can be an individual or a business entity in its own right. By investing in the franchisor, the franchisee can trade under their name and offer their same products and services. With the support, experience and proven business experience of the brand behind them, franchisees can start up their own branch of the franchisor’s business in no time at all.
Franchising allows you to enjoy owning a retail site, having your own team and running a branch of a business, but it also restricts you to the broader processes of the brand you’ve bought in to. There are many other pros and cons to consider before taking the plunge as a franchisee.
Pros and Cons of Franchising
There are plenty of positives and negatives to consider when starting out as a franchisee. However, if starting a small business from scratch isn’t your forte, your strengths may lie in a franchise business instead. Here’s what you need to think about before moving forward and looking into franchise opportunities:
- You’re buying into a proven brand. This is especially true if you choose to work with some of the world’s biggest franchisors like McDonald’s and Subway. You get the backing and support from a brand whose track record has been profitable, and whose future prospects look bright. For many, this is reason enough to choose the path of a franchisee.
- Proven concepts. In the same way as above, you don’t need to worry about coming up with a winning concept — it’s all done for you. Any sizeable future innovations will also come from the franchisor, which alleviates the pressure to think creatively on your feet. So long as you have the motivation and the energy to succeed, it’s worth looking into franchise opportunities.
- Quick growth. With a brand like Subway for example, you can bet you’ll have new and return customers visiting your store throughout the entire day. With a good brand and a good location, growing a franchise can take far less time than an independent company.
- Support. The level of support on offer varies from business to business, but there’s usually plenty of assistance (financial and otherwise) to get your franchise off the ground — it’s in the franchisor’s interest at the end of the day. Some businesses will have you complete a crash-course, covering everything from book-keeping to running social media, whilst others may offer 24-hour support or your very own personal franchise coach. In any case, compared to starting an independent business on your own, a franchise most definitely gives you a guiding hand and plenty of experience-based knowledge to take advantage of.
- Financial help. As well as the helpful funds your franchisor may offer you, banks tend to favour franchisees over startups who don’t have the backing of a big brand. This means even if you need to take out a loan to get things running, the chances of having your request granted are much higher.
- Location, location, location. Finding and securing a location is one of the biggest initial costs when starting a business. Many an entrepreneur has found themselves settling for less than their dream location because of costs and other logistics. With a franchisor behind you, you have the experience and funds to secure a prime-location branch on the high street or local shopping centre. Franchisors will think very carefully about where to place their next venture.
- Their way or the highway. Brands have their own way of doing things — with lots of compulsory documentation, training and guidance to get you on the same page. If do anything beyond the business model of your franchisor, you could face a penalty or have your franchisee licence cancelled. With this in mind, it’s unlikely that creative individuals will be happy working so rigidly to someone else’s concept. If you want room to stretch your entrepreneurial wings, think carefully before jumping in.
- It can be hard work. This is where franchising really doesn’t differ from running your own business. Though your franchiser will help out, train you up and secure you a great location, you’ll need to work the long hours, manage your team and develop strategies to make it a roaring success. Unlike an independent business, you may also feel like you constantly need to be working towards goals and figures to appease your franchising partner. While targets are necessary even when running your own business, having a franchisor involved can add to the pressure.
- You’re a link in a chain. And there’s no telling who could break that chain. Even with solid backing behind you, nobody can rule out the possibility that a franchisor will stumble upon hard times. No matter how hard you’ve worked, if the brand fails, so does your franchise. As with every business opportunity, there’s risk involved.
- Setup fees. Franchisors will ask you for an initial investment to cover the cost of setting up. This ranges from the lower thousands to the hundreds of thousands. After this is sorted, you’re then required to pay royalty fees in-full and on time to your franchisor. This setup isn’t going to work in the long-term if you feel uncomfortable passing your start-up money and earnings to a business that isn’t your own.
Some of the UK’s most recognised and loved brands operate through a franchise network, acting as a springboard for UK entrepreneurs by making them franchisees. To name a few of these franchise-led companies:
- McDonald’s – Around 70% of the fast food giant’s UK restaurants are operated by franchisees. In fact, it was franchisees who developed the iconic Big Mac and Filet-O-Fish trademarks.
- Subway – The leading sandwich chain operates entirely through a network of franchise agreements. As of October 2020 2,229 of these were in the UK.
- Europcar – This car rental company began in France and now has franchises in over 160 countries.
- Spar – Founded in 1957, the Dutch brand has more than 2,600 UK franchises in 2021.
- KFC – The fried chicken favourite is primarily franchise-run. Currently, franchises represent 95% of its UK presence, though it’s aiming for a 98% ownership.
- Costa Coffee – The nation’s most popular coffee shop chain operates 2,681 UK outlets as of February 2021. Owned by Coca-Cola, there are opportunities for full store franchise agreements, Proud to Serve Costa partnerships and the installation of Costa Express self-serve coffee bars.
- Greggs – The iconic sausage roll chain, founded in 1939 runs 307 franchise units, as of 2020.
- Fuller’s – It’s not difficult to find a pub that’s part of the franchise system with this mammoth chain. There are close to 400 scattered around the UK, particularly in London and the south east.
- Greene-King – This chain is even bigger and offers franchise opportunities for pubs, restaurants and hotels. Currently, there’s more than 3,100 across England, Wales and Scotland. They all run under a variety of brand names, including Hungry Horse, Loch Fyne and Farmhouse Inns.
- TONI&GUY – Originally launched in 1963 with a single store in Clapham, this hairdressing salon chain has gone from strength to strength. There’s now more than 631 salons across 48 countries. Since the late 80s, investors have been able to become part of the TONI&GUY empire through franchise agreements.
Square Point of Sale
Square’s bespoke POS system is ideal for multi-location franchise systems. Our electronic point of sale helps people run businesses with multiple locations easily. Manage sales, payments, records, inventory and more, simply and effectively, with no training required.
With Square Dashboard you can create unique business profiles for each location with specific business hours and individual bank accounts or tags to differentiate transfers. You can manage devices by location, too.
As your franchise expands, you can add tools that can help you take your next steps. Manage team members and add devices and locations, with only a couple of taps.