How to set up and run a small business

Leaderboard – Start Ups

You are here: Home » Start-Ups » Franchising » Starting up a franchise business – An overview

Starting up a franchise business – An overview

May 9, 2013

There are currently over 800 different businesses operating as franchises across the UK. Some of the more instantly recognisable brand names that offer franchise opportunities in the UK are Domino’s Pizza, McDonalds and Subway.

While some of the less well-known brands include Auditel, Business Doctors and Tax Assist Accountants, which all operate franchises in the business to business field.

Franchising, or “business format franchising” is the popular term used to describe the granting of a licence by one party (the franchisor) to another (the franchisee) which allows the franchisee to set up in business using the trade name and using the trademarks of the franchisor.

Typically, the franchisor will licence the trademarks and proven methods of its business operation to the franchisee for an initial set up fee and a cut of future sales or profits.

Franchise Facts & Figures

Statistics show that there are over 800 active franchises in the UK, employing an estimated 465,000 people. The franchising industry as a whole has an estimated turnover of approximately £12 billion per year, and the average turnover for a franchised business is around £350,000.

Historically, 36% of franchisees operate on a sole trader basis, 15% as partnerships and 49% through a limited company. You can find more about these business structures in our Company Formation section.

Why buy a franchise?

One key advantage of buying a franchise is that you will benefit from using an existing brand and business model and typically support in the form of advertising, training, business advice, and supply chain.

As you are buying into a proven business model, a franchise is are more likely to survive than other start-ups. This means that it can be a lower risk option than starting your own business from scratch. The price you pay for this reduction of risk is, of course, the fees that you will need to pay the franchisor.

Although franchises are far less likely to fail than other businesses, buying a franchise is not an easy route to riches. As with any business, it requires a great deal of hard work to turn it into a thriving success.

How does it work?

  • The franchisee will pay the franchisor an initial fee for the licence to sell their product of service. The average cost of opening a franchise in 2010 was £46,700, although these initial fees will vary according to the business sector you are in.
  • The franchisee will own the store or outlet, independently of the franchisor.
  • The franchisor keeps control over certain aspects of the business, for example how the products are presented, and sold.
  • Alongside the initial fee, the franchisee will usually pay the franchisor ongoing fees for the licence – for example as a percentage of the monthly or annual business turnover.
  • The franchisor is often responsible for marketing its franchised businesses, including providing support and assistance to franchisees.
  • The key to success for a franchise agreement is for the franchisor and franchisee to work closely together – uniting the franchisor’s established expertise with the franchisee’s entrepreneurial skills.
  • Franchise agreements typically last for a minimum of five years.

Franchise Resources

  • Many firms operating as franchises will be members of the British Franchise Association (BFA) which lays down a set of guidelines for franchisors to follow.
  • Franchiseinfo – a good source of franchise information, this is also the official website for the UK Franchise Exhibitions.
  • Which Franchise – a leading website for franchise information.