Franchise Finance: Business Loans For UK Franchises – £500K – DUPLICATE

What Is A Franchise Business?

Described simply, a franchise business is a business where the owners (franchisers) sell the rights to their business model to third party, independent operators – referred to as franchisees. A common way of expanding business, the franchiser will have already established their business’ brand, customer base and understanding of the market before choosing to scale up. The aim with franchising is to get someone else to replicate the success of the original business, and more businesses are franchises than you may realise. Take the well-known brands McDonalds, Subway and Papa John’s as prime examples of this…

How Does Franchising Work?

It’s important to remember that a franchise is not an independent business. Essentially, the franchisee buys an opportunity to run a business based on the franchisor’s already established business model and methods to ensure the franchisee meets the standards already in place. Franchisors usually create an Operations Manual for franchisee business owners, which acts as a strategy for how their business should be run. All logistics are covered in the Operations Manual, mapping out everything from marketing to products, services, store / site layout, employee recruitment and training.

Before a franchisee sets up, most franchisers will set up extensive training to ensure the business’ future success. When undertaking a franchise, a Franchise Agreement will be set up to stipulate all terms of the business relationship, covering factors like:

• Initial fees
• Royalties
• Operational support
• Franchise license length
• Territory and restrictions

Is Owning A Franchise A Good Investment?

Buying into a franchise is a different experience to setting up your own limited company. Less freedom exists as you agree to uphold the franchisor’s way of doing business. However, in return for this compromise you gain the opportunity to run a business on already proven models – which means your franchise has a high probability of success and even higher profit potential!

Pros & Cons Of Franchise Businesses

Pro – Ongoing Support: As mentioned previously, before undertaking a franchise you will be provided with extensive training. Franchise business owners can access first-hand support from franchisors, who also help with finding and retaining customers when getting the business off the ground. The amount of support offered will vary from franchisor to franchisor – but you can rest assured you won’t be left alone to struggle.

Pro – Access To Funding: Some franchisors will be willing to offer financial help when the business is first starting out. If the franchisor is reluctant to do so, franchise businesses can turn to traditional and alternative funding facilities – both of which are keen to lend to franchises on account of the increased security of being backed by a larger, already established firm.

Pro – Big Brands = Success: Franchisees building businesses under well-known brands can benefit from having an already well established market and respected business name – meaning you don’t need to waste time and energy in generating brand awareness.

Con – Less Business Freedom: Entrepreneurial creativity is typically restricted for franchises. Franchisors provide Operations Manuals that indicate how they want the business run, and there are often penalties applied for franchisees that go against these wishes.

Con – Fees: Franchisors charge franchisees an initial lump sum fee to set up a business using their name, logo etc. This amount varies according to the franchisor, and many franchise businesses are also forced to pay ongoing royalty fees.