You want the challenge of running a business but want to minimise the risks. Above all, you want to know your business idea is viable before you start. A good solution may be to take on a franchise.
If you want to run a business venture but want the security of knowing the business idea is workable, then franchising is an option well worth considering. It allows you to benefit from an existing brand name, and the business back-up of the brand owner.
The most common type of franchise is where the owner of a business grants a licence to another business to use their business idea. This is usually referred to as ‘business format franchising’. The franchisee pays a fee to the franchisor plus a percentage of sales revenue. In return, they sell the franchisor’s product.
To give a fictitious example, a national brush company trading under the name of Brushes grants a licence to individual shops to use their business idea. Each individual shop then becomes a franchisee, running a business called Brushes. The individual shops pay a fee plus a share of their revenue to Brushes. In return, Brushes offers the shops support and advice on marketing, design and sales. The franchisees own their businesses, but Brushes controls the way the products are marketed.
As well as an established product, marketplace and brand name, the franchisee benefits from the bulk-buying power, training opportunities, advertising and market intelligence of the franchisor. Compared with other start-up businesses, franchises are less likely to fail and take less time to turn a profit. The downside is that the franchisor may impose restrictions on the way the franchisee runs their business.
McDonald’s, Kentucky Fried Chicken and Toni & Guy are three well-known examples of franchised businesses, but there are many more examples. Franchises could be gyms, restaurants, clothes shops, mobile phone outlets, garages, car showrooms or any viable business.
The franchise could also take the form of a dealership, where the franchisee sells the product but operates under a different name. Or the franchisee could act as an agent for the franchisor, selling goods on their behalf.
The devil is in the detail with franchise agreements. It is best to seek independent legal advice before you sign, preferably from a solicitor accredited by the British Franchise Association.
Before signing up, you should pay particular attention to the following.
LexisNexis LawyerLocator complies with the Solicitors Regulation Authority's Code of Conduct 2011 regarding referrals published by the Solicitors Regulation Authority, and any solicitor to whom we refer you is an independent professional, from whom you will receive impartial and confidential advice. You are free to choose another Solicitor. In the event that you instruct a solicitor, LexisNexis LawyerLocator will be paid a referral fee of up to £40 per solicitor, per accepted enquiry, but this will not be added to your bill.