Building a business is not always about starting from scratch.
Buying a franchise is one way to own a business and start benefiting from it quickly. The advantage is that your franchisor's business is likely to be well-established, and there will be support available to help you succeed more easily.
Our franchise business guide is dedicated to support your franchise business and offers guidance on whether franchising is the right route for you.
Before you take on the responsibility of a franchise, consider how it will affect your life.
- Are you ready and able to put in long hours to make the business work?
- Do you have all the necessary skills or will you need to hire and/or acquire them?
- If you're starting the business with other people, are they as dedicated as you?
- Is your family prepared for the impact on your home life?
- What are your long-term career goals?
Taking on a franchise can be a great business opportunity but, before you commit your time and money, make sure you have also addressed the potential pitfalls.
- A proven business model
- An established brand that should make it easier to attract customers.
- The experience of other franchisees in your network.
- Reduced costs due to the buying power of the franchise network as a whole.
- The opportunity to run your own business supported by your franchisor.
- You must follow the business franchise model created by the franchisor, which means there is little scope for individual initiatives.
- You will be tied to the quality of goods supplied by the franchisor and may not be able to look at alternatives.
- You may be restricted in the pursuit of other business interests.
- Running a franchise can be a long-term commitment.
- If the franchisor or other franchisees get bad publicity, this may have an adverse effect on your business.
- When you sell the business, most franchisors have the right to approve the purchaser.
You’ll normally have to pay the franchisor for the right to set up in business under their brand name and in a specific location. Ongoing costs may include:
- A management service fee or royalty.
- A contribution to the advertising fund.
- A mark-up on goods supplied by the franchisor.
- An administration fee for specific services provided.
- A percentage, usually of sales, payable on a regular basis
In return, a good franchisor should offer you support and guidance to increase your chances of success, advising you on:
- How to supply the product or service.
- Accounting systems and marketing.
- Staff training and recruitment.
- Ongoing research and development.
Whether you’re an inspired entrepreneur or have more modest ambitions, there are several business franchises to choose from. The one you select will ultimately depend on your skills, knowledge and experience.
- An investment franchise requires you to invest a substantial sum, and employ a management team to run the outlet on a daily basis.
- An executive franchise allows you to work alone or with staff to provide a professional service.
- A retail franchise gives you the right to run one or more retail outlets and employ your own staff. You can display/sell only those products or services approved by the franchisor.
- A distribution franchise requires you to work from a depot owned and run by a franchisor, where you deliver products approved by the franchisor.
- A depot franchise means you operate your own depot, serving a mixture of trade and retail customers.
- A job franchise is a one-person business that can be run from home.
- A lifestyle franchise that fits around your existing family commitments.
- A management franchise working on the business managing a team who delivers the service.
The aim of researching a franchise opportunity is to ensure that it really is a tried-and-tested formula and one that is likely to succeed in your local area. Here are seven steps to follow:
- Step one: understand the industry sector you’re involved in.
- Step two: identify the market for the product or service in your chosen location.
- Step three: focus on three or four franchises and research them thoroughly.
- Step four: meet with the franchisors you’re interested in working with.
- Step five: speak to as many existing franchisees as you can.
- Step six: review your financial requirements.
- Step seven: get the legal agreement independently checked and explained to you before you sign on the dotted line by a British Franchise Association affiliated solicitor. Lloyds Bank provides a franchise agreement review service for franchisees at a discounted rate. Please download our franchise business guide and application.
You should also consider:
- Costs and performance projections.
- The amount of capital investment and likely profitability.
- Audited accounts and trading figures.
- How long the company has been franchising the business.
- The number of franchisees.
- The business formula and the support provided to deliver on it.
- Whether the franchise system has had any failures.
A franchisee agreement is a binding legal contract. Before you sign, talk to a British Franchise Association affiliated solicitor who can explain it in full. For guidance on planning your business, discuss the details with a British Franchise Association affiliated accountant. For independent guidance and support about franchising speak to the Lloyds Bank Franchise Unit. Initially email email@example.com with your question and a preferred call back time.
Being able to react to changes in the franchising sector often relies on being able to access financing. Whether you require an overdraft to make the most of an immediate opportunity or longer-term funding to support strategic growth, we have a range of finance options and products to suit your needs.
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Important legal information
Lloyds Bank plc. Registered office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales No. 2065. Lloyds Bank plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration number 119278. Telephone: 020 7626 1500
Eligible deposits with us are protected by the Financial Services Compensation Scheme (FSCS). We are covered by the Financial Ombudsman Service (FOS). Please note that due to FSCS and FOS eligibility criteria not all business customers will be covered.
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