Starting your own business from scratch can be a daunting prospect with a lot of unknowns. To reduce some of that risk, many choose to buy into a franchise, as a way of investing their time and money into a business that’s already established.
But is buying into a franchise right for you? To help you make an informed decision, we cover some of the most commonly asked questions.
What is a franchise business?
A franchise is a business which operates under a larger company’s brand trademark. It’s a separate business, run by a franchisee who pays a licence fee in order to trade as though it is the larger business. This might be in order to sell a product, or to provide a service.
A franchise licence often has a time limit, similar to leasing a property, and can be renewed at the end of the licence period.
These types of agreement also usually provide the franchisee with exclusive rights to operate or sell in a defined geographical area, or to a particular customer base.
Franchises are more common than you might expect, you’ll have likely bought products or services from franchises previously. One of the most famous examples of a franchise is the fast-food chain McDonald’s. But franchises exist in lots of industries, from health and fitness to entertainment.
Can I buy into a franchise as a sole trader?
Deciding on your business structure, also known as the legal structure, is one of the most fundamental decisions you’ll make when starting a business or franchise. There is no defined legal structure for franchises, which means that the structure you choose to operate as really depends on what works best for you, and the type of franchise you’re interested in buying.
The key differences between each legal structure is the time that it takes to set it up, how and when to pay tax (as well as the types of tax you’ll pay), and the risk to your personal assets if the business incurs debts.
For example, registering your franchise business as a sole trader is undoubtedly the quickest way to get started, but it means that you will be personally liable for any business debts.
What are the benefits of buying a franchise?
Buying a franchise is a great way of starting your own business, as you’ll be investing into an established business that’s already proven. One of the biggest advantages is that you are licensing a company’s brand, which means that you benefit from investing in a reputable brand that potential customers are already familiar with.
What are some of the drawbacks of buying a franchise?
Depending on the type of business you’re interested in, the up-front cost could be considerably higher than setting up a business on your own. When you start up your own business you have more control over what needs to happen, and when. In a franchise, the organisation that you buy into can sometimes dictate what your start up costs will be, because they will want you to provide an experience to your customers which reflects their brand.
The level of autonomy that you have over your franchise will vary between franchisors, but it can be restrictive. If you’re looking to get creative and put your own stamp on a business, then buying a franchise might not be the way for you to go.
Learn more about the pros and cons of buying a franchise business over a traditional business here.