There’s nothing quite like running your own business. If you’re drawn to becoming a franchisee, you’re not alone. According to Franchise UK, there are over 900 franchises and 48,000 franchise outlets in the UK, employing over 700,000 people.
Many see franchising as a lower-risk alternative to starting their own business from scratch, and it’s not hard to see why. When the British Franchise Association last surveyed the industry, they found that 93% of franchisees were profitable.
While working with an established brand has many benefits, there’s also a lot to consider, including how you’re going to source finance for setting up your franchise. To help those thinking of starting, already running, or expanding their own franchise, we’ve put together this article to explain what finance options are available.
How does owning a franchise work?
Franchises allow you to run a business using the name and assets of an established brand, such as a Burger King restaurant or a Best Western hotel.
Franchisees (i.e., you) would sign a contract and pay an initial investment to the franchisor (i.e., the brand you’ll be running), and then the business is yours to run.
As you are running the business, you’ll also be responsible for expenditure such as property, fit out, equipment, supplies, stock/produce, furniture, staffing costs, insurance, etc. Franchisees are also generally required to pay ongoing fees, which might be a set percentage of net turnover, to the franchisor.
Applicants generally must write a proposal and business plan that the franchisor must approve, but it can be a great way to start your own business. It comes with ready-made brand recognition and an established customer base. Many established franchises also provide some sort of support network beyond that brand name, such as marketing, training, technology, and IT and Accounting support.
What are the advantages and disadvantages of franchising?
Many people choose franchising because it comes with several built-in advantages that can lower the risk of failure. For a start, franchises come with brand credibility and awareness, and they’ll have their own marketing operations. Franchises also offer some level of support, such as training and consultancy to help you get your business off to the best possible start. This can be especially helpful if you don’t have much experience in your chosen industry.
There are also potential disadvantages to consider. You won’t have the same creative freedom that would come from owning your own business. Some franchises also require up-front investment (which can be considerable). You also won’t have the same financial freedom because you’ll have to share accounts with your chosen franchise, and they might decide not to renew your contract at the end of the initial term.
Ultimately, franchises give entrepreneurs the opportunity to run their own businesses with the strong backing of an established brand. It’s often just down to how much control you want over your business that dictates if a franchise is the best route for you.
What are some examples of franchises?
Some of the top UK franchises include:
- Fast food restaurants such as McDonald’s, Pizza Hut and KFC
- Retailers such as Swarovski, CeX and Cartridge World
- Coffeehouses such as Esquires Coffee and Dunkin’ Donuts
- Gyms such as the Little Gym, Anytime Fitness and 9Round
- Hotels such as Hilton, easyHotel and Travelodge
- Carehomes such as Clarity Home Care and Radfield Home Care
- Cleaners such as ServiceMaster and Molly Maid
- Leisure providers such as Launch Trampoline Park and Urban Air Adventure Park
- Educators such as First Class Learning and Mathnasium
What is Franchise Finance?
Franchise finance is the term used for financial solutions that are specific to the needs of business owners who are looking to source funds for running a franchise. For example, many franchises might have seasonal peaks in trade and repayment terms can reflect this with higher repayments for peak periods and lower payments during the offseason.
Franchise finance can cover:
- Franchise fees: Franchisors will often require an up-front investment as part of the agreement.
- Equipment fees: You can fund any type of equipment purchase that you can think of, depending on the type of franchise you’re running. This could cover till machines and software, cleaning equipment, coffee machines, treadmills and ovens. Essentially, anything that you’ll need for running your day-to-day operations can likely be funded.
- Fit out finance: You’ll need to make your property look the part! Fit out finance covers tangible items such as shelving, desks, tables as well as intangibles such as flooring, partitioning, decorating and branded collateral such as logos, pictures and lighting.
- Working capital: Working capital gives businesses space to comfortably cover staffing costs, utility bills as well as stock ordering. This can be especially useful in the first few months of a new business when you’re still building up your regular cashflow.
Can I get funding to buy a franchise?
Generally yes. Many franchises will allow you to use financing to buy a franchise, but it’s best to check with the specific organisation as they may request unencumbered funds for the initial investment. Even if this is the case, financing can still be used to support starting a franchise to provide equipment, working capital or other expenditures.
Why use Origin Finance?
At Origin Finance we have worked with the leading Franchises in the UK. As business finance, franchises yield great rewards, but there is a big investment before you get set up.
We’ve worked in many franchise industries such as Gyms, Coffee shops, Retail stores, Fast Food restaurants and Family Entertainment centres to provide complete finance packages.
We’re passionate about helping entrepreneurs succeed in their ambitions.
When you partner with us, you’ll be working with a human (not an algorithm) who’ll take the time to understand your business so that they can connect you with the most suitable lender for your needs. We have access to over 120 lenders, many of whom only deal with brokers like us.
Get in touch for a free, no-obligation quote to learn how we can help you fund your franchise.
