Buying a franchise
Franchising gives you the opportunity to own and run a business under an established brand with a proven format and business system.
A franchise consists of a joint venture between an independent third party (franchisee) and a business (franchisor). Both parties enter into an agreement for a pre–determined period. This venture is governed by a legal contract which gives the franchisee the right to operate using the franchisor's trade name/ trademark, in accordance with a business format or 'blueprint'.
A well established franchise will provide all the essential elements for a successful business except one – you, the owner. Before you commit, you need to ensure you have fully researched your chosen franchise to make sure it is the right one for you.
Franchising isn't suited to everyone as it involves a particular mind–set and attitude. There are some very clear advantages and disadvantages of taking on a franchise:
Advantages of buying a franchise
- Proven format – you enjoy many of the advantages of an established business
- Trade name – potential customers will be familiar and comfortable with the product or service you are offering and it should take less time to establish your business
- Training and support – you will be trained in all aspects of the operation, helping you in the set up and running of your business
- Finance – because you have the benefit of a proven business format behind you and projections which are normally based on reality and experience, your bank is more likely to look favorably at your proposition.
Disadvantages of buying a franchise
- Lack of independence – the franchisor will control many aspects of your business and receive a proportion of your sales income
- Restrictions on sale of business – a franchisor will not allow you to sell without approval. Nevertheless, the franchise contract normally allows you to sell your business, subject to the conditions of the agreement
- Restrictions on business activity – the franchisor will not normally allow you to become involved in activities outside the agreement, meaning you may be unable to exploit profitable business opportunities within your franchise operation.
Top ten tips for checking out a franchise:
- Find out what franchises are available by viewing whichfranchise.com – there are also exhibitions, directories and magazines all devoted to franchising.
- Take as much advice as possible – from the bfa, banks, lawyers, accountants, Business Links etc
- Examine your strengths and weaknesses – what skills do you have? Does the franchisor provide training and back-up to help you overcome any skill gaps?
- Check the franchise is right for you – is the business one you can see yourself running?
- Talk to existing franchisees – what problems did they face, how successful are they?
- Investigate the franchisor – it is important that the franchisor has the financial resources to support a franchise network.
- Examine the marketplace – is there a market for your chosen franchise's goods/services? Is the franchise operating in a market subject to the economic environment?
- Take care with new franchises – has the franchise been piloted, how long has the franchisor been in business?
- Check the legal agreement – has the franchise agreement been vetted by a franchise specialist solicitor?
- Take your time – however enthusiastic you are, don't be rushed and do your homework
KnowledgeCentre
Tools, checklists and practical information to help you and your business in the Knowledge Centre.
BusinessOffer
Starting a Franchise?
Download our guide (PDF) to find out what to consider and how we can help.
KnowledgeCentre
Write your business plan
Tips and a video case study on how to write a successful business plan.
Contact Us
Call our franchising team on:
0800 234 6224
For any assistance on your existing account please contact Business Telephone Banking on 08457 60 60 60 (international +44 (0) 1792 491 988)
Finance your franchise
HSBC can provide a range of financial solutions to meet the requirements of your franchise business.
The first step is to establish how much money you can invest in the business and what you will need to borrow. For an established and successful franchise HSBC will lend up to 70% of the total start up costs. For other franchises this figure will be around 50%.
To help us assess any request for finance, please provide a copy of your business plan prior to your initial meeting. Your chosen franchisor will often help you prepare this. You can also use our interactive business plan tool
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