The term 'franchising' can describe some very different business arrangements. It is important to understand exactly what you're being offered. There are two types of franchise methods - business format franchising and product and trade name franchising.

Business format franchise

This is the most common form of franchising within the UK. A true business format franchise occurs when the owner of a business (the franchisor) grants a licence to another person or business (the franchisee) to use their business idea - often in a specific geographical area.

The franchisee sells the franchisor's product or services, trades under the franchisor's trade mark or trade name, and benefits from the franchisor's help and support. This help and support usually takes the form of a turn-key system in order to assist the franchisee with business issues such as site selection, store layout and design, staff recruitment and training, marketing and supplier contacts.

In return, the franchisee usually pays an initial fee to the franchisor and then a percentage of the sales revenue. The franchisee owns the outlet they run. But the franchisor keeps control over how products are marketed and sold and how their business idea is used.

There are many examples of business format franchising opportunities such as fast food franchises, retail franchises, coffee shop franchises, gymnasium franchises and environmental cleaning franchises.

Product and trade name franchising

This type of franchising involves no upfront initial fees. The most important thing in product and trade name franchising is that the franchisor provides their product to a franchisee. The franchisee is required to purchase the product or range of products exclusively from the franchisor. The franchisor also provides national marketing and advertising campaigns, logos and trademarks.

Product and trade name franchising has three distinctive characteristics:

• the franchisee sells goods which are supplied by the franchisor or person affiliated with the franchisor
• the franchisor helps the franchisee to secure accounts
• within six months of opening the business, the franchisee must pay the franchisor or a person affiliated with the franchisor

Buying a franchise can be a quick way to set up your own business without starting from scratch. There are many benefits of franchising but there are also a number of drawbacks to consider.

Ten advantages of franchising

1. The risk of business failure is reduced by franchising. Your business is based on a proven idea. You can check how successful other franchises are before committing yourself.
2. Products and services will have already established a market share. Therefore there will be no need for market testing.
3. You can use a recognised brand name and trade mark. You benefit from any advertising or promotion by the owner of the franchise - the 'franchisor'.
4. The franchisor gives you support - usually as a complete package including training, help setting up the business, a manual telling you how to run the business and ongoing advice.
5. No prior experience is needed as the training received from the franchisor should ensure the franchisee establishes the skills required to operate the franchise.
6. A franchise enables a small business to compete with big businesses, more so than an independent small business, due to the pool of support from the franchisor and network of other franchisees.
7. You usually have exclusive rights in your territory. The franchisor won't sell any other franchises in the same territory.
8. Financing the business may be easier. Banks are sometimes more likely to lend money to buy a franchise with a good reputation.
9. You can benefit from communicating and sharing ideas with, and receiving support from, other franchisees in the network.
10. Relationships with suppliers have already been established.

Read more advantages of franchising.

Eight disadvantages of franchising

1. Costs may be higher than you expect. As well as the initial costs of buying the franchise, you pay continuing management service fees and you may have to agree to buy products from the franchisor.
2. The franchise agreement usually includes restrictions on how you can run the business. You might not be able to make changes to suit your local market.
3. You may find that after some time, ongoing franchisor monitoring becomes intrusive.
4. The franchisor might go out of business.
5. Other franchisees could give the brand a bad reputation, so the recruitment process needs to be thorough.
6. You may find it difficult to sell your franchise - you can only sell it to someone approved by the franchisor.
7. All profits (a percentage of sales) are usually shared with the franchisor.
8. The inflexible nature of a franchise may restrict your ability to introduce changes to the business to respond to the market or make the business grow.

Read more disadvantages of franchising.

As with any new business venture, you need to consider carefully whether you have got the right skills and attitude to run a successful franchise. You need to consider how much you enjoy managing people, selling to the public or working alone - as these are common requirements of different types of franchise. This page will help you decide whether franchising is right for you and which type of franchise plays best to your strengths.

Assess yourself as a potential franchisee

• You must be prepared for selling and marketing the franchise business. A franchise gives you a business blueprint - but it won't automatically give you customers.
• You'll need to work hard, probably for long and unsociable hours. Do you have the necessary dedication?
• Running your own business can be stressful. Think how you react to pressure.
• You may be starting up in business because you want to be your own boss. If so, would you be happy with the restrictions imposed by a franchise arrangement?
• On the other hand, you may want to limit your risk. You might be more comfortable with a franchise than starting a new business from scratch.
• Gain an understanding of the costs for investing in a franchise business. Calculate financially how much you can afford to risk. Are you also willing to give up the security of a regular wage?
• The success of the business could hinge on sound financial decisions. Are you able to commit to such decisions?
• Are you prepared to do jobs that are viewed as menial or low skill tasks especially at the infancy stage of the franchise operation?

Decide on the right franchise for you

• Do you like office work? Or would you prefer a business that involves physical labour or using a particular skill?
• Are you happy working on your own? Or would you be good at recruiting, training and managing employees?
• Do you like dealing with members of the public? Or would you prefer a franchise where you sell to business customers?
• Are you weak in particular business skills such as finance? Can you find a franchise that offers the support you need in those areas?

What type of franchise suits me?

You can find out about possible franchise opportunities from a range of sources.

British Franchise Association (BFA)

A useful starting point is the BFA website which offers franchising guidance. It also provides updated industry news.

whichfranchise.com

You can search for franchise opportunities on the whichfranchise.com website.

franchiseinfo.co.uk

You can also search for franchises for sale on the franchiseinfo.co.uk website where they also provide franchise advice and details of upcoming franchise exhibitions.

Assess a franchise opportunity carefully and to ascertain if a franchise is credible, you can check if the business offering the franchise is a member of the BFA.

To assess if a franchise represents a profitable business opportunity, you'll need to consider:

• what the business is and how it operates
• the location of the franchise
• the success of the franchise concept - the number of franchises in the UK, the length of time in business and how financially successful they are
• the amount and strength of competition from other businesses in the same market sector - at both a local and national level
• any market research that has analysed the public perception of the franchisor's (the business offering the franchise) brand - see market research and market reports
• levels of initial and ongoing costs of a franchise - costs involved when running a franchise
• how much training and support you'll get in setting up and running the business
• conditions and restrictions in the franchise agreement, including how long it will run and whether you'll have the option to renew - see the franchise agreement for a franchisor

The franchisor will probably give you an information pack but you shouldn't just rely on this. Ask questions and look for evidence of their claims.

Visit other franchisees

One of the most helpful things you can do before deciding on a franchise is to visit other franchisees and talk to them. Ask the franchisor for a full list of past and present franchisees, not just the two most successful ones. It is important to visit new and established franchises - of differing levels of success - in as many different locations as possible. This should give you a good idea of the challenges you yourself will face should you decide to go ahead with a specific franchise.

How a business plan can help assess a franchise

Just as you would for any other business, you need to draw up a business plan when buying a franchise. This will help you assess the prospects for the business and identify potential weaknesses. A business plan is also essential for raising finance. You should be able to get assistance with your plan from the franchisor - and banks with specialist franchise units can check how realistic your projections are. See business planning.

When calculating the likely cost of a franchise, you need to take both initial start-up costs and ongoing fees, usually linked to the income or profits of the franchise, into account.

Initial costs of a franchise

The franchisor - the business that sells you the franchise - usually charges an up-front initial fee. If the franchisor relies mainly on taking a percentage of your sales revenue, rather than on a high initial fee, it is usually a good indication that they have confidence in the value of their product or service.

Your largest initial costs are usually your investment in:

• premises
• equipment
• initial stock

You will need to establish a business entity or structure. Although a franchisee holds a contractual agreement with the franchisor, each franchisee is an independent business - and it is this business entity that will enter into the franchise agreement. Your chosen business structure could be a limited company, partnership or sole trader - each of which will involve different costs - or your franchisor might have specific requirements. See legal structures for businesses - an overview.

Ongoing costs of a franchise

There are a number of ongoing costs including:

• You usually pay a percentage of the sales revenue to the franchisor by way of a management service fee. Alternatively, you may pay a fixed management fee of some kind.
• Under the terms of the franchise agreement, you may have to buy stock from the franchisor. Check what they charge. They may mark up the prices - or they may be able to offer them to you at a discount because of their buying power.
• You also have to pay the usual business costs - for example, rent for premises, utility bills or the costs of any employees you take on. Again, check if the things that you pay for through the franchisor have a realistic cost.
• Check too if the agreement includes additional charges. For example, you may be required to pay for training, or to contribute to the cost of national advertising campaigns.

Financial returns

You should look into actual returns existing franchisees are achieving. You also need to be aware that the earliest franchises may have cornered the easiest or most profitable markets.

You could also try to work out what financial returns are projected for new franchises, for example, projections of very high profits from a small investment will probably be unrealistic.

There are a number of key things you need to consider when planning to buy a franchise.

What you should consider before buying a franchise

• Assess yourself to see what kind of franchise, if any, will suit you. See should I buy a franchise?
• Find out what franchise opportunities are available and draw up a shortlist. See find out about franchise opportunities.
• Assess a franchise opportunity carefully, ask questions and talk to other franchisees.
• When you find a business, investigate its financial prospects. Base this on thorough research of performance figures. Include an analysis of three years' accounts - if they have been trading for that period - and management figures.
• If you'll need to raise finance, ask your bank if it will consider a loan for the type of franchise you're considering. See advantages and disadvantages of bank loans.
• Do your own market research into the business and the competitors in your area. See market research and market reports.
• Draw up a business plan. See write a business plan: step-by-step.
• Check the franchise agreement and get professional advice from a solicitor and an accountant. See the franchise agreement for a franchisor.

However, it is advisable to make sure you don't:

• take up the first opportunity before investigating alternatives
• allow yourself to be hurried into making a decision
• pay any non-refundable deposit
• commit yourself before you're completely sure
• assume a business will work in your area just because it works elsewhere
• rely on the forecasts provided by the business selling you the franchise
• sign any agreement without legal advice

The franchise agreement is a crucial legal agreement. As there is no specific legislation or regulation for franchising, the franchise agreement becomes all-important in determining the rights and obligations of the franchisor and the franchisee as well as the relationship between them. If any disagreements should arise the franchise agreement will be used to address these issues.

Negotiatate your franchise agreement - don't think that you have to accept the first terms that are presented.

Seek legal advice

Don't sign any agreement, or pay any fees or deposit, until you have taken legal advice from an experienced franchise solicitor accredited by the British Franchise Association. Get a specimen contract for them to review. See choose a solicitor for your business.

Objectives of a franchise agreement

The franchise agreement should:

• contractually bind the franchisor and the franchisee by accurately stating the terms agreed
• protect the benefit for the franchisor and franchisee as well as protecting the franchisors intellectual property
• clearly define the rules to be observed by both parties

Franchise agreement - key areas covered

• Term - how long does the franchise last? Will you have the option to renew it, and on what terms?
• Territory - what area does your franchise cover? Do you have exclusive rights to sell within it?
• Fees - what initial fee will you pay? What percentage of sales revenue will you pay? Will you pay a regular management fee - and if so, what does it cover? Will you have to pay other costs? How are the costs worked out?
• Support - what kind of support can you expect? How much help will you get starting the business? What continuing support will you get?
• Restrictions - what restrictions are there on what you're allowed to do and how you must run the business?
• Exit - what happens if you can't continue in the business for some reason - perhaps due to ill health? What happens if you want to sell your franchise?

The term 'franchising' can describe some very different business arrangements. It is important to understand exactly what you're being offered. There are two types of franchise methods - business format franchising and product and trade name franchising.

Business format franchise

This is the most common form of franchising within the UK. A true business format franchise occurs when the owner of a business (the franchisor) grants a licence to another person or business (the franchisee) to use their business idea - often in a specific geographical area.

The franchisee sells the franchisor's product or services, trades under the franchisor's trade mark or trade name, and benefits from the franchisor's help and support. This help and support usually takes the form of a turn-key system in order to assist the franchisee with business issues such as site selection, store layout and design, staff recruitment and training, marketing and supplier contacts.

In return, the franchisee usually pays an initial fee to the franchisor and then a percentage of the sales revenue. The franchisee owns the outlet they run. But the franchisor keeps control over how products are marketed and sold and how their business idea is used.

There are many examples of business format franchising opportunities such as fast food franchises, retail franchises, coffee shop franchises, gymnasium franchises and environmental cleaning franchises.

Product and trade name franchising

This type of franchising involves no upfront initial fees. The most important thing in product and trade name franchising is that the franchisor provides their product to a franchisee. The franchisee is required to purchase the product or range of products exclusively from the franchisor. The franchisor also provides national marketing and advertising campaigns, logos and trademarks.

Product and trade name franchising has three distinctive characteristics:

• the franchisee sells goods which are supplied by the franchisor or person affiliated with the franchisor
• the franchisor helps the franchisee to secure accounts
• within six months of opening the business, the franchisee must pay the franchisor or a person affiliated with the franchisor

Buying a franchise can be a quick way to set up your own business without starting from scratch. There are many benefits of franchising but there are also a number of drawbacks to consider.

Ten advantages of franchising

1. The risk of business failure is reduced by franchising. Your business is based on a proven idea. You can check how successful other franchises are before committing yourself.
2. Products and services will have already established a market share. Therefore there will be no need for market testing.
3. You can use a recognised brand name and trade mark. You benefit from any advertising or promotion by the owner of the franchise - the 'franchisor'.
4. The franchisor gives you support - usually as a complete package including training, help setting up the business, a manual telling you how to run the business and ongoing advice.
5. No prior experience is needed as the training received from the franchisor should ensure the franchisee establishes the skills required to operate the franchise.
6. A franchise enables a small business to compete with big businesses, more so than an independent small business, due to the pool of support from the franchisor and network of other franchisees.
7. You usually have exclusive rights in your territory. The franchisor won't sell any other franchises in the same territory.
8. Financing the business may be easier. Banks are sometimes more likely to lend money to buy a franchise with a good reputation.
9. You can benefit from communicating and sharing ideas with, and receiving support from, other franchisees in the network.
10. Relationships with suppliers have already been established.

Read more advantages of franchising.

Eight disadvantages of franchising

1. Costs may be higher than you expect. As well as the initial costs of buying the franchise, you pay continuing management service fees and you may have to agree to buy products from the franchisor.
2. The franchise agreement usually includes restrictions on how you can run the business. You might not be able to make changes to suit your local market.
3. You may find that after some time, ongoing franchisor monitoring becomes intrusive.
4. The franchisor might go out of business.
5. Other franchisees could give the brand a bad reputation, so the recruitment process needs to be thorough.
6. You may find it difficult to sell your franchise - you can only sell it to someone approved by the franchisor.
7. All profits (a percentage of sales) are usually shared with the franchisor.
8. The inflexible nature of a franchise may restrict your ability to introduce changes to the business to respond to the market or make the business grow.

Read more disadvantages of franchising.

As with any new business venture, you need to consider carefully whether you have got the right skills and attitude to run a successful franchise. You need to consider how much you enjoy managing people, selling to the public or working alone - as these are common requirements of different types of franchise. This page will help you decide whether franchising is right for you and which type of franchise plays best to your strengths.

Assess yourself as a potential franchisee

• You must be prepared for selling and marketing the franchise business. A franchise gives you a business blueprint - but it won't automatically give you customers.
• You'll need to work hard, probably for long and unsociable hours. Do you have the necessary dedication?
• Running your own business can be stressful. Think how you react to pressure.
• You may be starting up in business because you want to be your own boss. If so, would you be happy with the restrictions imposed by a franchise arrangement?
• On the other hand, you may want to limit your risk. You might be more comfortable with a franchise than starting a new business from scratch.
• Gain an understanding of the costs for investing in a franchise business. Calculate financially how much you can afford to risk. Are you also willing to give up the security of a regular wage?
• The success of the business could hinge on sound financial decisions. Are you able to commit to such decisions?
• Are you prepared to do jobs that are viewed as menial or low skill tasks especially at the infancy stage of the franchise operation?

Decide on the right franchise for you

• Do you like office work? Or would you prefer a business that involves physical labour or using a particular skill?
• Are you happy working on your own? Or would you be good at recruiting, training and managing employees?
• Do you like dealing with members of the public? Or would you prefer a franchise where you sell to business customers?
• Are you weak in particular business skills such as finance? Can you find a franchise that offers the support you need in those areas?

What type of franchise suits me?

You can find out about possible franchise opportunities from a range of sources.

British Franchise Association (BFA)

A useful starting point is the BFA website which offers franchising guidance. It also provides updated industry news.

whichfranchise.com

You can search for franchise opportunities on the whichfranchise.com website.

franchiseinfo.co.uk

You can also search for franchises for sale on the franchiseinfo.co.uk website where they also provide franchise advice and details of upcoming franchise exhibitions.

Assess a franchise opportunity carefully and to ascertain if a franchise is credible, you can check if the business offering the franchise is a member of the BFA.

To assess if a franchise represents a profitable business opportunity, you'll need to consider:

• what the business is and how it operates
• the location of the franchise
• the success of the franchise concept - the number of franchises in the UK, the length of time in business and how financially successful they are
• the amount and strength of competition from other businesses in the same market sector - at both a local and national level
• any market research that has analysed the public perception of the franchisor's (the business offering the franchise) brand - see market research and market reports
• levels of initial and ongoing costs of a franchise - costs involved when running a franchise
• how much training and support you'll get in setting up and running the business
• conditions and restrictions in the franchise agreement, including how long it will run and whether you'll have the option to renew - see the franchise agreement for a franchisor

The franchisor will probably give you an information pack but you shouldn't just rely on this. Ask questions and look for evidence of their claims.

Visit other franchisees

One of the most helpful things you can do before deciding on a franchise is to visit other franchisees and talk to them. Ask the franchisor for a full list of past and present franchisees, not just the two most successful ones. It is important to visit new and established franchises - of differing levels of success - in as many different locations as possible. This should give you a good idea of the challenges you yourself will face should you decide to go ahead with a specific franchise.

How a business plan can help assess a franchise

Just as you would for any other business, you need to draw up a business plan when buying a franchise. This will help you assess the prospects for the business and identify potential weaknesses. A business plan is also essential for raising finance. You should be able to get assistance with your plan from the franchisor - and banks with specialist franchise units can check how realistic your projections are. See business planning.

When calculating the likely cost of a franchise, you need to take both initial start-up costs and ongoing fees, usually linked to the income or profits of the franchise, into account.

Initial costs of a franchise

The franchisor - the business that sells you the franchise - usually charges an up-front initial fee. If the franchisor relies mainly on taking a percentage of your sales revenue, rather than on a high initial fee, it is usually a good indication that they have confidence in the value of their product or service.

Your largest initial costs are usually your investment in:

• premises
• equipment
• initial stock

You will need to establish a business entity or structure. Although a franchisee holds a contractual agreement with the franchisor, each franchisee is an independent business - and it is this business entity that will enter into the franchise agreement. Your chosen business structure could be a limited company, partnership or sole trader - each of which will involve different costs - or your franchisor might have specific requirements. See legal structures for businesses - an overview.

Ongoing costs of a franchise

There are a number of ongoing costs including:

• You usually pay a percentage of the sales revenue to the franchisor by way of a management service fee. Alternatively, you may pay a fixed management fee of some kind.
• Under the terms of the franchise agreement, you may have to buy stock from the franchisor. Check what they charge. They may mark up the prices - or they may be able to offer them to you at a discount because of their buying power.
• You also have to pay the usual business costs - for example, rent for premises, utility bills or the costs of any employees you take on. Again, check if the things that you pay for through the franchisor have a realistic cost.
• Check too if the agreement includes additional charges. For example, you may be required to pay for training, or to contribute to the cost of national advertising campaigns.

Financial returns

You should look into actual returns existing franchisees are achieving. You also need to be aware that the earliest franchises may have cornered the easiest or most profitable markets.

You could also try to work out what financial returns are projected for new franchises, for example, projections of very high profits from a small investment will probably be unrealistic.

There are a number of key things you need to consider when planning to buy a franchise.

What you should consider before buying a franchise

• Assess yourself to see what kind of franchise, if any, will suit you. See should I buy a franchise?
• Find out what franchise opportunities are available and draw up a shortlist. See find out about franchise opportunities.
• Assess a franchise opportunity carefully, ask questions and talk to other franchisees.
• When you find a business, investigate its financial prospects. Base this on thorough research of performance figures. Include an analysis of three years' accounts - if they have been trading for that period - and management figures.
• If you'll need to raise finance, ask your bank if it will consider a loan for the type of franchise you're considering. See advantages and disadvantages of bank loans.
• Do your own market research into the business and the competitors in your area. See market research and market reports.
• Draw up a business plan. See write a business plan: step-by-step.
• Check the franchise agreement and get professional advice from a solicitor and an accountant. See the franchise agreement for a franchisor.

However, it is advisable to make sure you don't:

• take up the first opportunity before investigating alternatives
• allow yourself to be hurried into making a decision
• pay any non-refundable deposit
• commit yourself before you're completely sure
• assume a business will work in your area just because it works elsewhere
• rely on the forecasts provided by the business selling you the franchise
• sign any agreement without legal advice

The franchise agreement is a crucial legal agreement. As there is no specific legislation or regulation for franchising, the franchise agreement becomes all-important in determining the rights and obligations of the franchisor and the franchisee as well as the relationship between them. If any disagreements should arise the franchise agreement will be used to address these issues.

Negotiatate your franchise agreement - don't think that you have to accept the first terms that are presented.

Seek legal advice

Don't sign any agreement, or pay any fees or deposit, until you have taken legal advice from an experienced franchise solicitor accredited by the British Franchise Association. Get a specimen contract for them to review. See choose a solicitor for your business.

Objectives of a franchise agreement

The franchise agreement should:

• contractually bind the franchisor and the franchisee by accurately stating the terms agreed
• protect the benefit for the franchisor and franchisee as well as protecting the franchisors intellectual property
• clearly define the rules to be observed by both parties

Franchise agreement - key areas covered

• Term - how long does the franchise last? Will you have the option to renew it, and on what terms?
• Territory - what area does your franchise cover? Do you have exclusive rights to sell within it?
• Fees - what initial fee will you pay? What percentage of sales revenue will you pay? Will you pay a regular management fee - and if so, what does it cover? Will you have to pay other costs? How are the costs worked out?
• Support - what kind of support can you expect? How much help will you get starting the business? What continuing support will you get?
• Restrictions - what restrictions are there on what you're allowed to do and how you must run the business?
• Exit - what happens if you can't continue in the business for some reason - perhaps due to ill health? What happens if you want to sell your franchise?

The term 'franchising' can describe some very different business arrangements. It is important to understand exactly what you're being offered. There are two types of franchise methods - business format franchising and product and trade name franchising.

Business format franchise

This is the most common form of franchising within the UK. A true business format franchise occurs when the owner of a business (the franchisor) grants a licence to another person or business (the franchisee) to use their business idea - often in a specific geographical area.

The franchisee sells the franchisor's product or services, trades under the franchisor's trade mark or trade name, and benefits from the franchisor's help and support. This help and support usually takes the form of a turn-key system in order to assist the franchisee with business issues such as site selection, store layout and design, staff recruitment and training, marketing and supplier contacts.

In return, the franchisee usually pays an initial fee to the franchisor and then a percentage of the sales revenue. The franchisee owns the outlet they run. But the franchisor keeps control over how products are marketed and sold and how their business idea is used.

There are many examples of business format franchising opportunities such as fast food franchises, retail franchises, coffee shop franchises, gymnasium franchises and environmental cleaning franchises.

Product and trade name franchising

This type of franchising involves no upfront initial fees. The most important thing in product and trade name franchising is that the franchisor provides their product to a franchisee. The franchisee is required to purchase the product or range of products exclusively from the franchisor. The franchisor also provides national marketing and advertising campaigns, logos and trademarks.

Product and trade name franchising has three distinctive characteristics:

• the franchisee sells goods which are supplied by the franchisor or person affiliated with the franchisor
• the franchisor helps the franchisee to secure accounts
• within six months of opening the business, the franchisee must pay the franchisor or a person affiliated with the franchisor

Buying a franchise can be a quick way to set up your own business without starting from scratch. There are many benefits of franchising but there are also a number of drawbacks to consider.

Ten advantages of franchising

1. The risk of business failure is reduced by franchising. Your business is based on a proven idea. You can check how successful other franchises are before committing yourself.
2. Products and services will have already established a market share. Therefore there will be no need for market testing.
3. You can use a recognised brand name and trade mark. You benefit from any advertising or promotion by the owner of the franchise - the 'franchisor'.
4. The franchisor gives you support - usually as a complete package including training, help setting up the business, a manual telling you how to run the business and ongoing advice.
5. No prior experience is needed as the training received from the franchisor should ensure the franchisee establishes the skills required to operate the franchise.
6. A franchise enables a small business to compete with big businesses, more so than an independent small business, due to the pool of support from the franchisor and network of other franchisees.
7. You usually have exclusive rights in your territory. The franchisor won't sell any other franchises in the same territory.
8. Financing the business may be easier. Banks are sometimes more likely to lend money to buy a franchise with a good reputation.
9. You can benefit from communicating and sharing ideas with, and receiving support from, other franchisees in the network.
10. Relationships with suppliers have already been established.

Read more advantages of franchising.

Eight disadvantages of franchising

1. Costs may be higher than you expect. As well as the initial costs of buying the franchise, you pay continuing management service fees and you may have to agree to buy products from the franchisor.
2. The franchise agreement usually includes restrictions on how you can run the business. You might not be able to make changes to suit your local market.
3. You may find that after some time, ongoing franchisor monitoring becomes intrusive.
4. The franchisor might go out of business.
5. Other franchisees could give the brand a bad reputation, so the recruitment process needs to be thorough.
6. You may find it difficult to sell your franchise - you can only sell it to someone approved by the franchisor.
7. All profits (a percentage of sales) are usually shared with the franchisor.
8. The inflexible nature of a franchise may restrict your ability to introduce changes to the business to respond to the market or make the business grow.

Read more disadvantages of franchising.

As with any new business venture, you need to consider carefully whether you have got the right skills and attitude to run a successful franchise. You need to consider how much you enjoy managing people, selling to the public or working alone - as these are common requirements of different types of franchise. This page will help you decide whether franchising is right for you and which type of franchise plays best to your strengths.

Assess yourself as a potential franchisee

• You must be prepared for selling and marketing the franchise business. A franchise gives you a business blueprint - but it won't automatically give you customers.
• You'll need to work hard, probably for long and unsociable hours. Do you have the necessary dedication?
• Running your own business can be stressful. Think how you react to pressure.
• You may be starting up in business because you want to be your own boss. If so, would you be happy with the restrictions imposed by a franchise arrangement?
• On the other hand, you may want to limit your risk. You might be more comfortable with a franchise than starting a new business from scratch.
• Gain an understanding of the costs for investing in a franchise business. Calculate financially how much you can afford to risk. Are you also willing to give up the security of a regular wage?
• The success of the business could hinge on sound financial decisions. Are you able to commit to such decisions?
• Are you prepared to do jobs that are viewed as menial or low skill tasks especially at the infancy stage of the franchise operation?

Decide on the right franchise for you

• Do you like office work? Or would you prefer a business that involves physical labour or using a particular skill?
• Are you happy working on your own? Or would you be good at recruiting, training and managing employees?
• Do you like dealing with members of the public? Or would you prefer a franchise where you sell to business customers?
• Are you weak in particular business skills such as finance? Can you find a franchise that offers the support you need in those areas?

What type of franchise suits me?

You can find out about possible franchise opportunities from a range of sources.

British Franchise Association (BFA)

A useful starting point is the BFA website which offers franchising guidance. It also provides updated industry news.

whichfranchise.com

You can search for franchise opportunities on the whichfranchise.com website.

franchiseinfo.co.uk

You can also search for franchises for sale on the franchiseinfo.co.uk website where they also provide franchise advice and details of upcoming franchise exhibitions.

Assess a franchise opportunity carefully and to ascertain if a franchise is credible, you can check if the business offering the franchise is a member of the BFA.

To assess if a franchise represents a profitable business opportunity, you'll need to consider:

• what the business is and how it operates
• the location of the franchise
• the success of the franchise concept - the number of franchises in the UK, the length of time in business and how financially successful they are
• the amount and strength of competition from other businesses in the same market sector - at both a local and national level
• any market research that has analysed the public perception of the franchisor's (the business offering the franchise) brand - see market research and market reports
• levels of initial and ongoing costs of a franchise - costs involved when running a franchise
• how much training and support you'll get in setting up and running the business
• conditions and restrictions in the franchise agreement, including how long it will run and whether you'll have the option to renew - see the franchise agreement for a franchisor

The franchisor will probably give you an information pack but you shouldn't just rely on this. Ask questions and look for evidence of their claims.

Visit other franchisees

One of the most helpful things you can do before deciding on a franchise is to visit other franchisees and talk to them. Ask the franchisor for a full list of past and present franchisees, not just the two most successful ones. It is important to visit new and established franchises - of differing levels of success - in as many different locations as possible. This should give you a good idea of the challenges you yourself will face should you decide to go ahead with a specific franchise.

How a business plan can help assess a franchise

Just as you would for any other business, you need to draw up a business plan when buying a franchise. This will help you assess the prospects for the business and identify potential weaknesses. A business plan is also essential for raising finance. You should be able to get assistance with your plan from the franchisor - and banks with specialist franchise units can check how realistic your projections are. See business planning.

When calculating the likely cost of a franchise, you need to take both initial start-up costs and ongoing fees, usually linked to the income or profits of the franchise, into account.

Initial costs of a franchise

The franchisor - the business that sells you the franchise - usually charges an up-front initial fee. If the franchisor relies mainly on taking a percentage of your sales revenue, rather than on a high initial fee, it is usually a good indication that they have confidence in the value of their product or service.

Your largest initial costs are usually your investment in:

• premises
• equipment
• initial stock

You will need to establish a business entity or structure. Although a franchisee holds a contractual agreement with the franchisor, each franchisee is an independent business - and it is this business entity that will enter into the franchise agreement. Your chosen business structure could be a limited company, partnership or sole trader - each of which will involve different costs - or your franchisor might have specific requirements. See legal structures for businesses - an overview.

Ongoing costs of a franchise

There are a number of ongoing costs including:

• You usually pay a percentage of the sales revenue to the franchisor by way of a management service fee. Alternatively, you may pay a fixed management fee of some kind.
• Under the terms of the franchise agreement, you may have to buy stock from the franchisor. Check what they charge. They may mark up the prices - or they may be able to offer them to you at a discount because of their buying power.
• You also have to pay the usual business costs - for example, rent for premises, utility bills or the costs of any employees you take on. Again, check if the things that you pay for through the franchisor have a realistic cost.
• Check too if the agreement includes additional charges. For example, you may be required to pay for training, or to contribute to the cost of national advertising campaigns.

Financial returns

You should look into actual returns existing franchisees are achieving. You also need to be aware that the earliest franchises may have cornered the easiest or most profitable markets.

You could also try to work out what financial returns are projected for new franchises, for example, projections of very high profits from a small investment will probably be unrealistic.

There are a number of key things you need to consider when planning to buy a franchise.

What you should consider before buying a franchise

• Assess yourself to see what kind of franchise, if any, will suit you. See should I buy a franchise?
• Find out what franchise opportunities are available and draw up a shortlist. See find out about franchise opportunities.
• Assess a franchise opportunity carefully, ask questions and talk to other franchisees.
• When you find a business, investigate its financial prospects. Base this on thorough research of performance figures. Include an analysis of three years' accounts - if they have been trading for that period - and management figures.
• If you'll need to raise finance, ask your bank if it will consider a loan for the type of franchise you're considering. See advantages and disadvantages of bank loans.
• Do your own market research into the business and the competitors in your area. See market research and market reports.
• Draw up a business plan. See write a business plan: step-by-step.
• Check the franchise agreement and get professional advice from a solicitor and an accountant. See the franchise agreement for a franchisor.

However, it is advisable to make sure you don't:

• take up the first opportunity before investigating alternatives
• allow yourself to be hurried into making a decision
• pay any non-refundable deposit
• commit yourself before you're completely sure
• assume a business will work in your area just because it works elsewhere
• rely on the forecasts provided by the business selling you the franchise
• sign any agreement without legal advice

The franchise agreement is a crucial legal agreement. As there is no specific legislation or regulation for franchising, the franchise agreement becomes all-important in determining the rights and obligations of the franchisor and the franchisee as well as the relationship between them. If any disagreements should arise the franchise agreement will be used to address these issues.

Negotiatate your franchise agreement - don't think that you have to accept the first terms that are presented.

Seek legal advice

Don't sign any agreement, or pay any fees or deposit, until you have taken legal advice from an experienced franchise solicitor accredited by the British Franchise Association. Get a specimen contract for them to review. See choose a solicitor for your business.

Objectives of a franchise agreement

The franchise agreement should:

• contractually bind the franchisor and the franchisee by accurately stating the terms agreed
• protect the benefit for the franchisor and franchisee as well as protecting the franchisors intellectual property
• clearly define the rules to be observed by both parties

Franchise agreement - key areas covered

• Term - how long does the franchise last? Will you have the option to renew it, and on what terms?
• Territory - what area does your franchise cover? Do you have exclusive rights to sell within it?
• Fees - what initial fee will you pay? What percentage of sales revenue will you pay? Will you pay a regular management fee - and if so, what does it cover? Will you have to pay other costs? How are the costs worked out?
• Support - what kind of support can you expect? How much help will you get starting the business? What continuing support will you get?
• Restrictions - what restrictions are there on what you're allowed to do and how you must run the business?
• Exit - what happens if you can't continue in the business for some reason - perhaps due to ill health? What happens if you want to sell your franchise?

The term 'franchising' can describe some very different business arrangements. It is important to understand exactly what you're being offered. There are two types of franchise methods - business format franchising and product and trade name franchising.

Business format franchise

This is the most common form of franchising within the UK. A true business format franchise occurs when the owner of a business (the franchisor) grants a licence to another person or business (the franchisee) to use their business idea - often in a specific geographical area.

The franchisee sells the franchisor's product or services, trades under the franchisor's trade mark or trade name, and benefits from the franchisor's help and support. This help and support usually takes the form of a turn-key system in order to assist the franchisee with business issues such as site selection, store layout and design, staff recruitment and training, marketing and supplier contacts.

In return, the franchisee usually pays an initial fee to the franchisor and then a percentage of the sales revenue. The franchisee owns the outlet they run. But the franchisor keeps control over how products are marketed and sold and how their business idea is used.

There are many examples of business format franchising opportunities such as fast food franchises, retail franchises, coffee shop franchises, gymnasium franchises and environmental cleaning franchises.

Product and trade name franchising

This type of franchising involves no upfront initial fees. The most important thing in product and trade name franchising is that the franchisor provides their product to a franchisee. The franchisee is required to purchase the product or range of products exclusively from the franchisor. The franchisor also provides national marketing and advertising campaigns, logos and trademarks.

Product and trade name franchising has three distinctive characteristics:

• the franchisee sells goods which are supplied by the franchisor or person affiliated with the franchisor
• the franchisor helps the franchisee to secure accounts
• within six months of opening the business, the franchisee must pay the franchisor or a person affiliated with the franchisor

Buying a franchise can be a quick way to set up your own business without starting from scratch. There are many benefits of franchising but there are also a number of drawbacks to consider.

Ten advantages of franchising

1. The risk of business failure is reduced by franchising. Your business is based on a proven idea. You can check how successful other franchises are before committing yourself.
2. Products and services will have already established a market share. Therefore there will be no need for market testing.
3. You can use a recognised brand name and trade mark. You benefit from any advertising or promotion by the owner of the franchise - the 'franchisor'.
4. The franchisor gives you support - usually as a complete package including training, help setting up the business, a manual telling you how to run the business and ongoing advice.
5. No prior experience is needed as the training received from the franchisor should ensure the franchisee establishes the skills required to operate the franchise.
6. A franchise enables a small business to compete with big businesses, more so than an independent small business, due to the pool of support from the franchisor and network of other franchisees.
7. You usually have exclusive rights in your territory. The franchisor won't sell any other franchises in the same territory.
8. Financing the business may be easier. Banks are sometimes more likely to lend money to buy a franchise with a good reputation.
9. You can benefit from communicating and sharing ideas with, and receiving support from, other franchisees in the network.
10. Relationships with suppliers have already been established.

Read more advantages of franchising.

Eight disadvantages of franchising

1. Costs may be higher than you expect. As well as the initial costs of buying the franchise, you pay continuing management service fees and you may have to agree to buy products from the franchisor.
2. The franchise agreement usually includes restrictions on how you can run the business. You might not be able to make changes to suit your local market.
3. You may find that after some time, ongoing franchisor monitoring becomes intrusive.
4. The franchisor might go out of business.
5. Other franchisees could give the brand a bad reputation, so the recruitment process needs to be thorough.
6. You may find it difficult to sell your franchise - you can only sell it to someone approved by the franchisor.
7. All profits (a percentage of sales) are usually shared with the franchisor.
8. The inflexible nature of a franchise may restrict your ability to introduce changes to the business to respond to the market or make the business grow.

Read more disadvantages of franchising.

As with any new business venture, you need to consider carefully whether you have got the right skills and attitude to run a successful franchise. You need to consider how much you enjoy managing people, selling to the public or working alone - as these are common requirements of different types of franchise. This page will help you decide whether franchising is right for you and which type of franchise plays best to your strengths.

Assess yourself as a potential franchisee

• You must be prepared for selling and marketing the franchise business. A franchise gives you a business blueprint - but it won't automatically give you customers.
• You'll need to work hard, probably for long and unsociable hours. Do you have the necessary dedication?
• Running your own business can be stressful. Think how you react to pressure.
• You may be starting up in business because you want to be your own boss. If so, would you be happy with the restrictions imposed by a franchise arrangement?
• On the other hand, you may want to limit your risk. You might be more comfortable with a franchise than starting a new business from scratch.
• Gain an understanding of the costs for investing in a franchise business. Calculate financially how much you can afford to risk. Are you also willing to give up the security of a regular wage?
• The success of the business could hinge on sound financial decisions. Are you able to commit to such decisions?
• Are you prepared to do jobs that are viewed as menial or low skill tasks especially at the infancy stage of the franchise operation?

Decide on the right franchise for you

• Do you like office work? Or would you prefer a business that involves physical labour or using a particular skill?
• Are you happy working on your own? Or would you be good at recruiting, training and managing employees?
• Do you like dealing with members of the public? Or would you prefer a franchise where you sell to business customers?
• Are you weak in particular business skills such as finance? Can you find a franchise that offers the support you need in those areas?

What type of franchise suits me?

You can find out about possible franchise opportunities from a range of sources.

British Franchise Association (BFA)

A useful starting point is the BFA website which offers franchising guidance. It also provides updated industry news.

whichfranchise.com

You can search for franchise opportunities on the whichfranchise.com website.

franchiseinfo.co.uk

You can also search for franchises for sale on the franchiseinfo.co.uk website where they also provide franchise advice and details of upcoming franchise exhibitions.

Assess a franchise opportunity carefully and to ascertain if a franchise is credible, you can check if the business offering the franchise is a member of the BFA.

To assess if a franchise represents a profitable business opportunity, you'll need to consider:

• what the business is and how it operates
• the location of the franchise
• the success of the franchise concept - the number of franchises in the UK, the length of time in business and how financially successful they are
• the amount and strength of competition from other businesses in the same market sector - at both a local and national level
• any market research that has analysed the public perception of the franchisor's (the business offering the franchise) brand - see market research and market reports
• levels of initial and ongoing costs of a franchise - costs involved when running a franchise
• how much training and support you'll get in setting up and running the business
• conditions and restrictions in the franchise agreement, including how long it will run and whether you'll have the option to renew - see the franchise agreement for a franchisor

The franchisor will probably give you an information pack but you shouldn't just rely on this. Ask questions and look for evidence of their claims.

Visit other franchisees

One of the most helpful things you can do before deciding on a franchise is to visit other franchisees and talk to them. Ask the franchisor for a full list of past and present franchisees, not just the two most successful ones. It is important to visit new and established franchises - of differing levels of success - in as many different locations as possible. This should give you a good idea of the challenges you yourself will face should you decide to go ahead with a specific franchise.

How a business plan can help assess a franchise

Just as you would for any other business, you need to draw up a business plan when buying a franchise. This will help you assess the prospects for the business and identify potential weaknesses. A business plan is also essential for raising finance. You should be able to get assistance with your plan from the franchisor - and banks with specialist franchise units can check how realistic your projections are. See business planning.

When calculating the likely cost of a franchise, you need to take both initial start-up costs and ongoing fees, usually linked to the income or profits of the franchise, into account.

Initial costs of a franchise

The franchisor - the business that sells you the franchise - usually charges an up-front initial fee. If the franchisor relies mainly on taking a percentage of your sales revenue, rather than on a high initial fee, it is usually a good indication that they have confidence in the value of their product or service.

Your largest initial costs are usually your investment in:

• premises
• equipment
• initial stock

You will need to establish a business entity or structure. Although a franchisee holds a contractual agreement with the franchisor, each franchisee is an independent business - and it is this business entity that will enter into the franchise agreement. Your chosen business structure could be a limited company, partnership or sole trader - each of which will involve different costs - or your franchisor might have specific requirements. See legal structures for businesses - an overview.

Ongoing costs of a franchise

There are a number of ongoing costs including:

• You usually pay a percentage of the sales revenue to the franchisor by way of a management service fee. Alternatively, you may pay a fixed management fee of some kind.
• Under the terms of the franchise agreement, you may have to buy stock from the franchisor. Check what they charge. They may mark up the prices - or they may be able to offer them to you at a discount because of their buying power.
• You also have to pay the usual business costs - for example, rent for premises, utility bills or the costs of any employees you take on. Again, check if the things that you pay for through the franchisor have a realistic cost.
• Check too if the agreement includes additional charges. For example, you may be required to pay for training, or to contribute to the cost of national advertising campaigns.

Financial returns

You should look into actual returns existing franchisees are achieving. You also need to be aware that the earliest franchises may have cornered the easiest or most profitable markets.

You could also try to work out what financial returns are projected for new franchises, for example, projections of very high profits from a small investment will probably be unrealistic.

There are a number of key things you need to consider when planning to buy a franchise.

What you should consider before buying a franchise

• Assess yourself to see what kind of franchise, if any, will suit you. See should I buy a franchise?
• Find out what franchise opportunities are available and draw up a shortlist. See find out about franchise opportunities.
• Assess a franchise opportunity carefully, ask questions and talk to other franchisees.
• When you find a business, investigate its financial prospects. Base this on thorough research of performance figures. Include an analysis of three years' accounts - if they have been trading for that period - and management figures.
• If you'll need to raise finance, ask your bank if it will consider a loan for the type of franchise you're considering. See advantages and disadvantages of bank loans.
• Do your own market research into the business and the competitors in your area. See market research and market reports.
• Draw up a business plan. See write a business plan: step-by-step.
• Check the franchise agreement and get professional advice from a solicitor and an accountant. See the franchise agreement for a franchisor.

However, it is advisable to make sure you don't:

• take up the first opportunity before investigating alternatives
• allow yourself to be hurried into making a decision
• pay any non-refundable deposit
• commit yourself before you're completely sure
• assume a business will work in your area just because it works elsewhere
• rely on the forecasts provided by the business selling you the franchise
• sign any agreement without legal advice

The franchise agreement is a crucial legal agreement. As there is no specific legislation or regulation for franchising, the franchise agreement becomes all-important in determining the rights and obligations of the franchisor and the franchisee as well as the relationship between them. If any disagreements should arise the franchise agreement will be used to address these issues.

Negotiatate your franchise agreement - don't think that you have to accept the first terms that are presented.

Seek legal advice

Don't sign any agreement, or pay any fees or deposit, until you have taken legal advice from an experienced franchise solicitor accredited by the British Franchise Association. Get a specimen contract for them to review. See choose a solicitor for your business.

Objectives of a franchise agreement

The franchise agreement should:

• contractually bind the franchisor and the franchisee by accurately stating the terms agreed
• protect the benefit for the franchisor and franchisee as well as protecting the franchisors intellectual property
• clearly define the rules to be observed by both parties

Franchise agreement - key areas covered

• Term - how long does the franchise last? Will you have the option to renew it, and on what terms?
• Territory - what area does your franchise cover? Do you have exclusive rights to sell within it?
• Fees - what initial fee will you pay? What percentage of sales revenue will you pay? Will you pay a regular management fee - and if so, what does it cover? Will you have to pay other costs? How are the costs worked out?
• Support - what kind of support can you expect? How much help will you get starting the business? What continuing support will you get?
• Restrictions - what restrictions are there on what you're allowed to do and how you must run the business?
• Exit - what happens if you can't continue in the business for some reason - perhaps due to ill health? What happens if you want to sell your franchise?

The term 'franchising' can describe some very different business arrangements. It is important to understand exactly what you're being offered. There are two types of franchise methods - business format franchising and product and trade name franchising.

Business format franchise

This is the most common form of franchising within the UK. A true business format franchise occurs when the owner of a business (the franchisor) grants a licence to another person or business (the franchisee) to use their business idea - often in a specific geographical area.

The franchisee sells the franchisor's product or services, trades under the franchisor's trade mark or trade name, and benefits from the franchisor's help and support. This help and support usually takes the form of a turn-key system in order to assist the franchisee with business issues such as site selection, store layout and design, staff recruitment and training, marketing and supplier contacts.

In return, the franchisee usually pays an initial fee to the franchisor and then a percentage of the sales revenue. The franchisee owns the outlet they run. But the franchisor keeps control over how products are marketed and sold and how their business idea is used.

There are many examples of business format franchising opportunities such as fast food franchises, retail franchises, coffee shop franchises, gymnasium franchises and environmental cleaning franchises.

Product and trade name franchising

This type of franchising involves no upfront initial fees. The most important thing in product and trade name franchising is that the franchisor provides their product to a franchisee. The franchisee is required to purchase the product or range of products exclusively from the franchisor. The franchisor also provides national marketing and advertising campaigns, logos and trademarks.

Product and trade name franchising has three distinctive characteristics:

• the franchisee sells goods which are supplied by the franchisor or person affiliated with the franchisor
• the franchisor helps the franchisee to secure accounts
• within six months of opening the business, the franchisee must pay the franchisor or a person affiliated with the franchisor

Buying a franchise can be a quick way to set up your own business without starting from scratch. There are many benefits of franchising but there are also a number of drawbacks to consider.

Ten advantages of franchising

1. The risk of business failure is reduced by franchising. Your business is based on a proven idea. You can check how successful other franchises are before committing yourself.
2. Products and services will have already established a market share. Therefore there will be no need for market testing.
3. You can use a recognised brand name and trade mark. You benefit from any advertising or promotion by the owner of the franchise - the 'franchisor'.
4. The franchisor gives you support - usually as a complete package including training, help setting up the business, a manual telling you how to run the business and ongoing advice.
5. No prior experience is needed as the training received from the franchisor should ensure the franchisee establishes the skills required to operate the franchise.
6. A franchise enables a small business to compete with big businesses, more so than an independent small business, due to the pool of support from the franchisor and network of other franchisees.
7. You usually have exclusive rights in your territory. The franchisor won't sell any other franchises in the same territory.
8. Financing the business may be easier. Banks are sometimes more likely to lend money to buy a franchise with a good reputation.
9. You can benefit from communicating and sharing ideas with, and receiving support from, other franchisees in the network.
10. Relationships with suppliers have already been established.

Read more advantages of franchising.

Eight disadvantages of franchising

1. Costs may be higher than you expect. As well as the initial costs of buying the franchise, you pay continuing management service fees and you may have to agree to buy products from the franchisor.
2. The franchise agreement usually includes restrictions on how you can run the business. You might not be able to make changes to suit your local market.
3. You may find that after some time, ongoing franchisor monitoring becomes intrusive.
4. The franchisor might go out of business.
5. Other franchisees could give the brand a bad reputation, so the recruitment process needs to be thorough.
6. You may find it difficult to sell your franchise - you can only sell it to someone approved by the franchisor.
7. All profits (a percentage of sales) are usually shared with the franchisor.
8. The inflexible nature of a franchise may restrict your ability to introduce changes to the business to respond to the market or make the business grow.

Read more disadvantages of franchising.

As with any new business venture, you need to consider carefully whether you have got the right skills and attitude to run a successful franchise. You need to consider how much you enjoy managing people, selling to the public or working alone - as these are common requirements of different types of franchise. This page will help you decide whether franchising is right for you and which type of franchise plays best to your strengths.

Assess yourself as a potential franchisee

• You must be prepared for selling and marketing the franchise business. A franchise gives you a business blueprint - but it won't automatically give you customers.
• You'll need to work hard, probably for long and unsociable hours. Do you have the necessary dedication?
• Running your own business can be stressful. Think how you react to pressure.
• You may be starting up in business because you want to be your own boss. If so, would you be happy with the restrictions imposed by a franchise arrangement?
• On the other hand, you may want to limit your risk. You might be more comfortable with a franchise than starting a new business from scratch.
• Gain an understanding of the costs for investing in a franchise business. Calculate financially how much you can afford to risk. Are you also willing to give up the security of a regular wage?
• The success of the business could hinge on sound financial decisions. Are you able to commit to such decisions?
• Are you prepared to do jobs that are viewed as menial or low skill tasks especially at the infancy stage of the franchise operation?

Decide on the right franchise for you

• Do you like office work? Or would you prefer a business that involves physical labour or using a particular skill?
• Are you happy working on your own? Or would you be good at recruiting, training and managing employees?
• Do you like dealing with members of the public? Or would you prefer a franchise where you sell to business customers?
• Are you weak in particular business skills such as finance? Can you find a franchise that offers the support you need in those areas?

What type of franchise suits me?

You can find out about possible franchise opportunities from a range of sources.

British Franchise Association (BFA)

A useful starting point is the BFA website which offers franchising guidance. It also provides updated industry news.

whichfranchise.com

You can search for franchise opportunities on the whichfranchise.com website.

franchiseinfo.co.uk

You can also search for franchises for sale on the franchiseinfo.co.uk website where they also provide franchise advice and details of upcoming franchise exhibitions.

Assess a franchise opportunity carefully and to ascertain if a franchise is credible, you can check if the business offering the franchise is a member of the BFA.

To assess if a franchise represents a profitable business opportunity, you'll need to consider:

• what the business is and how it operates
• the location of the franchise
• the success of the franchise concept - the number of franchises in the UK, the length of time in business and how financially successful they are
• the amount and strength of competition from other businesses in the same market sector - at both a local and national level
• any market research that has analysed the public perception of the franchisor's (the business offering the franchise) brand - see market research and market reports
• levels of initial and ongoing costs of a franchise - costs involved when running a franchise
• how much training and support you'll get in setting up and running the business
• conditions and restrictions in the franchise agreement, including how long it will run and whether you'll have the option to renew - see the franchise agreement for a franchisor

The franchisor will probably give you an information pack but you shouldn't just rely on this. Ask questions and look for evidence of their claims.

Visit other franchisees

One of the most helpful things you can do before deciding on a franchise is to visit other franchisees and talk to them. Ask the franchisor for a full list of past and present franchisees, not just the two most successful ones. It is important to visit new and established franchises - of differing levels of success - in as many different locations as possible. This should give you a good idea of the challenges you yourself will face should you decide to go ahead with a specific franchise.

How a business plan can help assess a franchise

Just as you would for any other business, you need to draw up a business plan when buying a franchise. This will help you assess the prospects for the business and identify potential weaknesses. A business plan is also essential for raising finance. You should be able to get assistance with your plan from the franchisor - and banks with specialist franchise units can check how realistic your projections are. See business planning.

When calculating the likely cost of a franchise, you need to take both initial start-up costs and ongoing fees, usually linked to the income or profits of the franchise, into account.

Initial costs of a franchise

The franchisor - the business that sells you the franchise - usually charges an up-front initial fee. If the franchisor relies mainly on taking a percentage of your sales revenue, rather than on a high initial fee, it is usually a good indication that they have confidence in the value of their product or service.

Your largest initial costs are usually your investment in:

• premises
• equipment
• initial stock

You will need to establish a business entity or structure. Although a franchisee holds a contractual agreement with the franchisor, each franchisee is an independent business - and it is this business entity that will enter into the franchise agreement. Your chosen business structure could be a limited company, partnership or sole trader - each of which will involve different costs - or your franchisor might have specific requirements. See legal structures for businesses - an overview.

Ongoing costs of a franchise

There are a number of ongoing costs including:

• You usually pay a percentage of the sales revenue to the franchisor by way of a management service fee. Alternatively, you may pay a fixed management fee of some kind.
• Under the terms of the franchise agreement, you may have to buy stock from the franchisor. Check what they charge. They may mark up the prices - or they may be able to offer them to you at a discount because of their buying power.
• You also have to pay the usual business costs - for example, rent for premises, utility bills or the costs of any employees you take on. Again, check if the things that you pay for through the franchisor have a realistic cost.
• Check too if the agreement includes additional charges. For example, you may be required to pay for training, or to contribute to the cost of national advertising campaigns.

Financial returns

You should look into actual returns existing franchisees are achieving. You also need to be aware that the earliest franchises may have cornered the easiest or most profitable markets.

You could also try to work out what financial returns are projected for new franchises, for example, projections of very high profits from a small investment will probably be unrealistic.

There are a number of key things you need to consider when planning to buy a franchise.

What you should consider before buying a franchise

• Assess yourself to see what kind of franchise, if any, will suit you. See should I buy a franchise?
• Find out what franchise opportunities are available and draw up a shortlist. See find out about franchise opportunities.
• Assess a franchise opportunity carefully, ask questions and talk to other franchisees.
• When you find a business, investigate its financial prospects. Base this on thorough research of performance figures. Include an analysis of three years' accounts - if they have been trading for that period - and management figures.
• If you'll need to raise finance, ask your bank if it will consider a loan for the type of franchise you're considering. See advantages and disadvantages of bank loans.
• Do your own market research into the business and the competitors in your area. See market research and market reports.
• Draw up a business plan. See write a business plan: step-by-step.
• Check the franchise agreement and get professional advice from a solicitor and an accountant. See the franchise agreement for a franchisor.

However, it is advisable to make sure you don't:

• take up the first opportunity before investigating alternatives
• allow yourself to be hurried into making a decision
• pay any non-refundable deposit
• commit yourself before you're completely sure
• assume a business will work in your area just because it works elsewhere
• rely on the forecasts provided by the business selling you the franchise
• sign any agreement without legal advice

The franchise agreement is a crucial legal agreement. As there is no specific legislation or regulation for franchising, the franchise agreement becomes all-important in determining the rights and obligations of the franchisor and the franchisee as well as the relationship between them. If any disagreements should arise the franchise agreement will be used to address these issues.

Negotiatate your franchise agreement - don't think that you have to accept the first terms that are presented.

Seek legal advice

Don't sign any agreement, or pay any fees or deposit, until you have taken legal advice from an experienced franchise solicitor accredited by the British Franchise Association. Get a specimen contract for them to review. See choose a solicitor for your business.

Objectives of a franchise agreement

The franchise agreement should:

• contractually bind the franchisor and the franchisee by accurately stating the terms agreed
• protect the benefit for the franchisor and franchisee as well as protecting the franchisors intellectual property
• clearly define the rules to be observed by both parties

Franchise agreement - key areas covered

• Term - how long does the franchise last? Will you have the option to renew it, and on what terms?
• Territory - what area does your franchise cover? Do you have exclusive rights to sell within it?
• Fees - what initial fee will you pay? What percentage of sales revenue will you pay? Will you pay a regular management fee - and if so, what does it cover? Will you have to pay other costs? How are the costs worked out?
• Support - what kind of support can you expect? How much help will you get starting the business? What continuing support will you get?
• Restrictions - what restrictions are there on what you're allowed to do and how you must run the business?
• Exit - what happens if you can't continue in the business for some reason - perhaps due to ill health? What happens if you want to sell your franchise?

The term 'franchising' can describe some very different business arrangements. It is important to understand exactly what you're being offered. There are two types of franchise methods - business format franchising and product and trade name franchising.

Business format franchise

This is the most common form of franchising within the UK. A true business format franchise occurs when the owner of a business (the franchisor) grants a licence to another person or business (the franchisee) to use their business idea - often in a specific geographical area.

The franchisee sells the franchisor's product or services, trades under the franchisor's trade mark or trade name, and benefits from the franchisor's help and support. This help and support usually takes the form of a turn-key system in order to assist the franchisee with business issues such as site selection, store layout and design, staff recruitment and training, marketing and supplier contacts.

In return, the franchisee usually pays an initial fee to the franchisor and then a percentage of the sales revenue. The franchisee owns the outlet they run. But the franchisor keeps control over how products are marketed and sold and how their business idea is used.

There are many examples of business format franchising opportunities such as fast food franchises, retail franchises, coffee shop franchises, gymnasium franchises and environmental cleaning franchises.

Product and trade name franchising

This type of franchising involves no upfront initial fees. The most important thing in product and trade name franchising is that the franchisor provides their product to a franchisee. The franchisee is required to purchase the product or range of products exclusively from the franchisor. The franchisor also provides national marketing and advertising campaigns, logos and trademarks.

Product and trade name franchising has three distinctive characteristics:

• the franchisee sells goods which are supplied by the franchisor or person affiliated with the franchisor
• the franchisor helps the franchisee to secure accounts
• within six months of opening the business, the franchisee must pay the franchisor or a person affiliated with the franchisor

Buying a franchise can be a quick way to set up your own business without starting from scratch. There are many benefits of franchising but there are also a number of drawbacks to consider.

Ten advantages of franchising

1. The risk of business failure is reduced by franchising. Your business is based on a proven idea. You can check how successful other franchises are before committing yourself.
2. Products and services will have already established a market share. Therefore there will be no need for market testing.
3. You can use a recognised brand name and trade mark. You benefit from any advertising or promotion by the owner of the franchise - the 'franchisor'.
4. The franchisor gives you support - usually as a complete package including training, help setting up the business, a manual telling you how to run the business and ongoing advice.
5. No prior experience is needed as the training received from the franchisor should ensure the franchisee establishes the skills required to operate the franchise.
6. A franchise enables a small business to compete with big businesses, more so than an independent small business, due to the pool of support from the franchisor and network of other franchisees.
7. You usually have exclusive rights in your territory. The franchisor won't sell any other franchises in the same territory.
8. Financing the business may be easier. Banks are sometimes more likely to lend money to buy a franchise with a good reputation.
9. You can benefit from communicating and sharing ideas with, and receiving support from, other franchisees in the network.
10. Relationships with suppliers have already been established.

Read more advantages of franchising.

Eight disadvantages of franchising

1. Costs may be higher than you expect. As well as the initial costs of buying the franchise, you pay continuing management service fees and you may have to agree to buy products from the franchisor.
2. The franchise agreement usually includes restrictions on how you can run the business. You might not be able to make changes to suit your local market.
3. You may find that after some time, ongoing franchisor monitoring becomes intrusive.
4. The franchisor might go out of business.
5. Other franchisees could give the brand a bad reputation, so the recruitment process needs to be thorough.
6. You may find it difficult to sell your franchise - you can only sell it to someone approved by the franchisor.
7. All profits (a percentage of sales) are usually shared with the franchisor.
8. The inflexible nature of a franchise may restrict your ability to introduce changes to the business to respond to the market or make the business grow.

Read more disadvantages of franchising.

As with any new business venture, you need to consider carefully whether you have got the right skills and attitude to run a successful franchise. You need to consider how much you enjoy managing people, selling to the public or working alone - as these are common requirements of different types of franchise. This page will help you decide whether franchising is right for you and which type of franchise plays best to your strengths.

Assess yourself as a potential franchisee

• You must be prepared for selling and marketing the franchise business. A franchise gives you a business blueprint - but it won't automatically give you customers.
• You'll need to work hard, probably for long and unsociable hours. Do you have the necessary dedication?
• Running your own business can be stressful. Think how you react to pressure.
• You may be starting up in business because you want to be your own boss. If so, would you be happy with the restrictions imposed by a franchise arrangement?
• On the other hand, you may want to limit your risk. You might be more comfortable with a franchise than starting a new business from scratch.
• Gain an understanding of the costs for investing in a franchise business. Calculate financially how much you can afford to risk. Are you also willing to give up the security of a regular wage?
• The success of the business could hinge on sound financial decisions. Are you able to commit to such decisions?
• Are you prepared to do jobs that are viewed as menial or low skill tasks especially at the infancy stage of the franchise operation?

Decide on the right franchise for you

• Do you like office work? Or would you prefer a business that involves physical labour or using a particular skill?
• Are you happy working on your own? Or would you be good at recruiting, training and managing employees?
• Do you like dealing with members of the public? Or would you prefer a franchise where you sell to business customers?
• Are you weak in particular business skills such as finance? Can you find a franchise that offers the support you need in those areas?

What type of franchise suits me?

You can find out about possible franchise opportunities from a range of sources.

British Franchise Association (BFA)

A useful starting point is the BFA website which offers franchising guidance. It also provides updated industry news.

whichfranchise.com

You can search for franchise opportunities on the whichfranchise.com website.

franchiseinfo.co.uk

You can also search for franchises for sale on the franchiseinfo.co.uk website where they also provide franchise advice and details of upcoming franchise exhibitions.

Assess a franchise opportunity carefully and to ascertain if a franchise is credible, you can check if the business offering the franchise is a member of the BFA.

To assess if a franchise represents a profitable business opportunity, you'll need to consider:

• what the business is and how it operates
• the location of the franchise
• the success of the franchise concept - the number of franchises in the UK, the length of time in business and how financially successful they are
• the amount and strength of competition from other businesses in the same market sector - at both a local and national level
• any market research that has analysed the public perception of the franchisor's (the business offering the franchise) brand - see market research and market reports
• levels of initial and ongoing costs of a franchise - costs involved when running a franchise
• how much training and support you'll get in setting up and running the business
• conditions and restrictions in the franchise agreement, including how long it will run and whether you'll have the option to renew - see the franchise agreement for a franchisor

The franchisor will probably give you an information pack but you shouldn't just rely on this. Ask questions and look for evidence of their claims.

Visit other franchisees

One of the most helpful things you can do before deciding on a franchise is to visit other franchisees and talk to them. Ask the franchisor for a full list of past and present franchisees, not just the two most successful ones. It is important to visit new and established franchises - of differing levels of success - in as many different locations as possible. This should give you a good idea of the challenges you yourself will face should you decide to go ahead with a specific franchise.

How a business plan can help assess a franchise

Just as you would for any other business, you need to draw up a business plan when buying a franchise. This will help you assess the prospects for the business and identify potential weaknesses. A business plan is also essential for raising finance. You should be able to get assistance with your plan from the franchisor - and banks with specialist franchise units can check how realistic your projections are. See business planning.

When calculating the likely cost of a franchise, you need to take both initial start-up costs and ongoing fees, usually linked to the income or profits of the franchise, into account.

Initial costs of a franchise

The franchisor - the business that sells you the franchise - usually charges an up-front initial fee. If the franchisor relies mainly on taking a percentage of your sales revenue, rather than on a high initial fee, it is usually a good indication that they have confidence in the value of their product or service.

Your largest initial costs are usually your investment in:

• premises
• equipment
• initial stock

You will need to establish a business entity or structure. Although a franchisee holds a contractual agreement with the franchisor, each franchisee is an independent business - and it is this business entity that will enter into the franchise agreement. Your chosen business structure could be a limited company, partnership or sole trader - each of which will involve different costs - or your franchisor might have specific requirements. See legal structures for businesses - an overview.

Ongoing costs of a franchise

There are a number of ongoing costs including:

• You usually pay a percentage of the sales revenue to the franchisor by way of a management service fee. Alternatively, you may pay a fixed management fee of some kind.
• Under the terms of the franchise agreement, you may have to buy stock from the franchisor. Check what they charge. They may mark up the prices - or they may be able to offer them to you at a discount because of their buying power.
• You also have to pay the usual business costs - for example, rent for premises, utility bills or the costs of any employees you take on. Again, check if the things that you pay for through the franchisor have a realistic cost.
• Check too if the agreement includes additional charges. For example, you may be required to pay for training, or to contribute to the cost of national advertising campaigns.

Financial returns

You should look into actual returns existing franchisees are achieving. You also need to be aware that the earliest franchises may have cornered the easiest or most profitable markets.

You could also try to work out what financial returns are projected for new franchises, for example, projections of very high profits from a small investment will probably be unrealistic.

There are a number of key things you need to consider when planning to buy a franchise.

What you should consider before buying a franchise

• Assess yourself to see what kind of franchise, if any, will suit you. See should I buy a franchise?
• Find out what franchise opportunities are available and draw up a shortlist. See find out about franchise opportunities.
• Assess a franchise opportunity carefully, ask questions and talk to other franchisees.
• When you find a business, investigate its financial prospects. Base this on thorough research of performance figures. Include an analysis of three years' accounts - if they have been trading for that period - and management figures.
• If you'll need to raise finance, ask your bank if it will consider a loan for the type of franchise you're considering. See advantages and disadvantages of bank loans.
• Do your own market research into the business and the competitors in your area. See market research and market reports.
• Draw up a business plan. See write a business plan: step-by-step.
• Check the franchise agreement and get professional advice from a solicitor and an accountant. See the franchise agreement for a franchisor.

However, it is advisable to make sure you don't:

• take up the first opportunity before investigating alternatives
• allow yourself to be hurried into making a decision
• pay any non-refundable deposit
• commit yourself before you're completely sure
• assume a business will work in your area just because it works elsewhere
• rely on the forecasts provided by the business selling you the franchise
• sign any agreement without legal advice

The franchise agreement is a crucial legal agreement. As there is no specific legislation or regulation for franchising, the franchise agreement becomes all-important in determining the rights and obligations of the franchisor and the franchisee as well as the relationship between them. If any disagreements should arise the franchise agreement will be used to address these issues.

Negotiatate your franchise agreement - don't think that you have to accept the first terms that are presented.

Seek legal advice

Don't sign any agreement, or pay any fees or deposit, until you have taken legal advice from an experienced franchise solicitor accredited by the British Franchise Association. Get a specimen contract for them to review. See choose a solicitor for your business.

Objectives of a franchise agreement

The franchise agreement should:

• contractually bind the franchisor and the franchisee by accurately stating the terms agreed
• protect the benefit for the franchisor and franchisee as well as protecting the franchisors intellectual property
• clearly define the rules to be observed by both parties

Franchise agreement - key areas covered

• Term - how long does the franchise last? Will you have the option to renew it, and on what terms?
• Territory - what area does your franchise cover? Do you have exclusive rights to sell within it?
• Fees - what initial fee will you pay? What percentage of sales revenue will you pay? Will you pay a regular management fee - and if so, what does it cover? Will you have to pay other costs? How are the costs worked out?
• Support - what kind of support can you expect? How much help will you get starting the business? What continuing support will you get?
• Restrictions - what restrictions are there on what you're allowed to do and how you must run the business?
• Exit - what happens if you can't continue in the business for some reason - perhaps due to ill health? What happens if you want to sell your franchise?

The term 'franchising' can describe some very different business arrangements. It is important to understand exactly what you're being offered. There are two types of franchise methods - business format franchising and product and trade name franchising.

Business format franchise

This is the most common form of franchising within the UK. A true business format franchise occurs when the owner of a business (the franchisor) grants a licence to another person or business (the franchisee) to use their business idea - often in a specific geographical area.

The franchisee sells the franchisor's product or services, trades under the franchisor's trade mark or trade name, and benefits from the franchisor's help and support. This help and support usually takes the form of a turn-key system in order to assist the franchisee with business issues such as site selection, store layout and design, staff recruitment and training, marketing and supplier contacts.

In return, the franchisee usually pays an initial fee to the franchisor and then a percentage of the sales revenue. The franchisee owns the outlet they run. But the franchisor keeps control over how products are marketed and sold and how their business idea is used.

There are many examples of business format franchising opportunities such as fast food franchises, retail franchises, coffee shop franchises, gymnasium franchises and environmental cleaning franchises.

Product and trade name franchising

This type of franchising involves no upfront initial fees. The most important thing in product and trade name franchising is that the franchisor provides their product to a franchisee. The franchisee is required to purchase the product or range of products exclusively from the franchisor. The franchisor also provides national marketing and advertising campaigns, logos and trademarks.

Product and trade name franchising has three distinctive characteristics:

• the franchisee sells goods which are supplied by the franchisor or person affiliated with the franchisor
• the franchisor helps the franchisee to secure accounts
• within six months of opening the business, the franchisee must pay the franchisor or a person affiliated with the franchisor

Buying a franchise can be a quick way to set up your own business without starting from scratch. There are many benefits of franchising but there are also a number of drawbacks to consider.

Ten advantages of franchising

1. The risk of business failure is reduced by franchising. Your business is based on a proven idea. You can check how successful other franchises are before committing yourself.
2. Products and services will have already established a market share. Therefore there will be no need for market testing.
3. You can use a recognised brand name and trade mark. You benefit from any advertising or promotion by the owner of the franchise - the 'franchisor'.
4. The franchisor gives you support - usually as a complete package including training, help setting up the business, a manual telling you how to run the business and ongoing advice.
5. No prior experience is needed as the training received from the franchisor should ensure the franchisee establishes the skills required to operate the franchise.
6. A franchise enables a small business to compete with big businesses, more so than an independent small business, due to the pool of support from the franchisor and network of other franchisees.
7. You usually have exclusive rights in your territory. The franchisor won't sell any other franchises in the same territory.
8. Financing the business may be easier. Banks are sometimes more likely to lend money to buy a franchise with a good reputation.
9. You can benefit from communicating and sharing ideas with, and receiving support from, other franchisees in the network.
10. Relationships with suppliers have already been established.

Read more advantages of franchising.

Eight disadvantages of franchising

1. Costs may be higher than you expect. As well as the initial costs of buying the franchise, you pay continuing management service fees and you may have to agree to buy products from the franchisor.
2. The franchise agreement usually includes restrictions on how you can run the business. You might not be able to make changes to suit your local market.
3. You may find that after some time, ongoing franchisor monitoring becomes intrusive.
4. The franchisor might go out of business.
5. Other franchisees could give the brand a bad reputation, so the recruitment process needs to be thorough.
6. You may find it difficult to sell your franchise - you can only sell it to someone approved by the franchisor.
7. All profits (a percentage of sales) are usually shared with the franchisor.
8. The inflexible nature of a franchise may restrict your ability to introduce changes to the business to respond to the market or make the business grow.

Read more disadvantages of franchising.

As with any new business venture, you need to consider carefully whether you have got the right skills and attitude to run a successful franchise. You need to consider how much you enjoy managing people, selling to the public or working alone - as these are common requirements of different types of franchise. This page will help you decide whether franchising is right for you and which type of franchise plays best to your strengths.

Assess yourself as a potential franchisee

• You must be prepared for selling and marketing the franchise business. A franchise gives you a business blueprint - but it won't automatically give you customers.
• You'll need to work hard, probably for long and unsociable hours. Do you have the necessary dedication?
• Running your own business can be stressful. Think how you react to pressure.
• You may be starting up in business because you want to be your own boss. If so, would you be happy with the restrictions imposed by a franchise arrangement?
• On the other hand, you may want to limit your risk. You might be more comfortable with a franchise than starting a new business from scratch.
• Gain an understanding of the costs for investing in a franchise business. Calculate financially how much you can afford to risk. Are you also willing to give up the security of a regular wage?
• The success of the business could hinge on sound financial decisions. Are you able to commit to such decisions?
• Are you prepared to do jobs that are viewed as menial or low skill tasks especially at the infancy stage of the franchise operation?

Decide on the right franchise for you

• Do you like office work? Or would you prefer a business that involves physical labour or using a particular skill?
• Are you happy working on your own? Or would you be good at recruiting, training and managing employees?
• Do you like dealing with members of the public? Or would you prefer a franchise where you sell to business customers?
• Are you weak in particular business skills such as finance? Can you find a franchise that offers the support you need in those areas?

What type of franchise suits me?

You can find out about possible franchise opportunities from a range of sources.

British Franchise Association (BFA)

A useful starting point is the BFA website which offers franchising guidance. It also provides updated industry news.

whichfranchise.com

You can search for franchise opportunities on the whichfranchise.com website.

franchiseinfo.co.uk

You can also search for franchises for sale on the franchiseinfo.co.uk website where they also provide franchise advice and details of upcoming franchise exhibitions.

Assess a franchise opportunity carefully and to ascertain if a franchise is credible, you can check if the business offering the franchise is a member of the BFA.

To assess if a franchise represents a profitable business opportunity, you'll need to consider:

• what the business is and how it operates
• the location of the franchise
• the success of the franchise concept - the number of franchises in the UK, the length of time in business and how financially successful they are
• the amount and strength of competition from other businesses in the same market sector - at both a local and national level
• any market research that has analysed the public perception of the franchisor's (the business offering the franchise) brand - see market research and market reports
• levels of initial and ongoing costs of a franchise - costs involved when running a franchise
• how much training and support you'll get in setting up and running the business
• conditions and restrictions in the franchise agreement, including how long it will run and whether you'll have the option to renew - see the franchise agreement for a franchisor

The franchisor will probably give you an information pack but you shouldn't just rely on this. Ask questions and look for evidence of their claims.

Visit other franchisees

One of the most helpful things you can do before deciding on a franchise is to visit other franchisees and talk to them. Ask the franchisor for a full list of past and present franchisees, not just the two most successful ones. It is important to visit new and established franchises - of differing levels of success - in as many different locations as possible. This should give you a good idea of the challenges you yourself will face should you decide to go ahead with a specific franchise.

How a business plan can help assess a franchise

Just as you would for any other business, you need to draw up a business plan when buying a franchise. This will help you assess the prospects for the business and identify potential weaknesses. A business plan is also essential for raising finance. You should be able to get assistance with your plan from the franchisor - and banks with specialist franchise units can check how realistic your projections are. See business planning.

When calculating the likely cost of a franchise, you need to take both initial start-up costs and ongoing fees, usually linked to the income or profits of the franchise, into account.

Initial costs of a franchise

The franchisor - the business that sells you the franchise - usually charges an up-front initial fee. If the franchisor relies mainly on taking a percentage of your sales revenue, rather than on a high initial fee, it is usually a good indication that they have confidence in the value of their product or service.

Your largest initial costs are usually your investment in:

• premises
• equipment
• initial stock

You will need to establish a business entity or structure. Although a franchisee holds a contractual agreement with the franchisor, each franchisee is an independent business - and it is this business entity that will enter into the franchise agreement. Your chosen business structure could be a limited company, partnership or sole trader - each of which will involve different costs - or your franchisor might have specific requirements. See legal structures for businesses - an overview.

Ongoing costs of a franchise

There are a number of ongoing costs including:

• You usually pay a percentage of the sales revenue to the franchisor by way of a management service fee. Alternatively, you may pay a fixed management fee of some kind.
• Under the terms of the franchise agreement, you may have to buy stock from the franchisor. Check what they charge. They may mark up the prices - or they may be able to offer them to you at a discount because of their buying power.
• You also have to pay the usual business costs - for example, rent for premises, utility bills or the costs of any employees you take on. Again, check if the things that you pay for through the franchisor have a realistic cost.
• Check too if the agreement includes additional charges. For example, you may be required to pay for training, or to contribute to the cost of national advertising campaigns.

Financial returns

You should look into actual returns existing franchisees are achieving. You also need to be aware that the earliest franchises may have cornered the easiest or most profitable markets.

You could also try to work out what financial returns are projected for new franchises, for example, projections of very high profits from a small investment will probably be unrealistic.

There are a number of key things you need to consider when planning to buy a franchise.

What you should consider before buying a franchise

• Assess yourself to see what kind of franchise, if any, will suit you. See should I buy a franchise?
• Find out what franchise opportunities are available and draw up a shortlist. See find out about franchise opportunities.
• Assess a franchise opportunity carefully, ask questions and talk to other franchisees.
• When you find a business, investigate its financial prospects. Base this on thorough research of performance figures. Include an analysis of three years' accounts - if they have been trading for that period - and management figures.
• If you'll need to raise finance, ask your bank if it will consider a loan for the type of franchise you're considering. See advantages and disadvantages of bank loans.
• Do your own market research into the business and the competitors in your area. See market research and market reports.
• Draw up a business plan. See write a business plan: step-by-step.
• Check the franchise agreement and get professional advice from a solicitor and an accountant. See the franchise agreement for a franchisor.

However, it is advisable to make sure you don't:

• take up the first opportunity before investigating alternatives
• allow yourself to be hurried into making a decision
• pay any non-refundable deposit
• commit yourself before you're completely sure
• assume a business will work in your area just because it works elsewhere
• rely on the forecasts provided by the business selling you the franchise
• sign any agreement without legal advice

The franchise agreement is a crucial legal agreement. As there is no specific legislation or regulation for franchising, the franchise agreement becomes all-important in determining the rights and obligations of the franchisor and the franchisee as well as the relationship between them. If any disagreements should arise the franchise agreement will be used to address these issues.

Negotiatate your franchise agreement - don't think that you have to accept the first terms that are presented.

Seek legal advice

Don't sign any agreement, or pay any fees or deposit, until you have taken legal advice from an experienced franchise solicitor accredited by the British Franchise Association. Get a specimen contract for them to review. See choose a solicitor for your business.

Objectives of a franchise agreement

The franchise agreement should:

• contractually bind the franchisor and the franchisee by accurately stating the terms agreed
• protect the benefit for the franchisor and franchisee as well as protecting the franchisors intellectual property
• clearly define the rules to be observed by both parties

Franchise agreement - key areas covered

• Term - how long does the franchise last? Will you have the option to renew it, and on what terms?
• Territory - what area does your franchise cover? Do you have exclusive rights to sell within it?
• Fees - what initial fee will you pay? What percentage of sales revenue will you pay? Will you pay a regular management fee - and if so, what does it cover? Will you have to pay other costs? How are the costs worked out?
• Support - what kind of support can you expect? How much help will you get starting the business? What continuing support will you get?
• Restrictions - what restrictions are there on what you're allowed to do and how you must run the business?
• Exit - what happens if you can't continue in the business for some reason - perhaps due to ill health? What happens if you want to sell your franchise?