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Starting your own business using a franchisor’s brand, products, and business model in exchange for fees and royalties can have its benefits. Launching your business using an established market and processes means a lot of work has already been done for you, so you’re not starting totally from scratch.

So, is it the right option for you? In this article we go over some of the most common questions that tend to come up from potential franchisees.

What is a business franchise?

A franchise is where a business is allowed to trade using the brand identity and business model of another more established business – usually in exchange for a fee and royalty payments. Some of the most recognisable high-street brands, such as McDonalds, are operated on a franchise basis.

If you ‘buy’ a franchise, you’re buying the rights to use that brand, and will operate in a way which gives the impression you’re another branch of the same brand.

Do I need to register my own business to buy a franchise?

Yes, you’ll need to register your own business in order to operate a franchise. Buying a franchise just means you have the rights to use those trading names and structure, but you will still function as a separate business.

What type of business structure should I use to operate a franchise?

The franchise itself is a business model rather than a legal structure, so it’s up to you to set up and register a business to run the franchise. The franchisor (the brand you buy into) might have certain requirements as part of the franchise agreement, so it’s worth checking if they stipulate a particular structure.

If not, it’s up to you which type of legal structure you choose for your business, such as a:

  • Sole trader
  • Partnership
  • Limited Liability Partnership
  • Limited company

There are key differences between each legal structure which will affect the way you pay tax, and even the level of personal risk you might face if the business has any debts. Take your time with this decision!
 

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Will I need to submit my own tax returns as a franchisee?

Yes, buying into a franchise just means you have the right to use that brand, but you’ll still operate as a separate business, with your own tax reporting responsibilities. The type of tax return you will need to submit depends on what sort of business structure you use.

For instance, a limited company must submit a Company Tax Return to report its profits and pay Corporation Tax. Depending on your circumstances you might also need to:

If I take on a franchise, how independent can I be?

Taking on a franchise business means you’ll need to find a good balance between your own independence and meeting the franchisor’s guidelines and standards.

While you’ll have the autonomy to manage the day-to-day operations of your franchise, you’ll also need to follow the established business model, brand guidelines and operational protocols that the franchisor sets. These can cover a very wide range of areas such as:

  • Marketing strategies
  • What products and services are available
  • Employee training
  • Customer service standards
  • Which suppliers you use

That said, there might well still be room for flexibility and decision-making, especially on a day-to-day level. Franchisees often have the opportunity to localise their offerings and marketing efforts to suit their target market.

Successful franchises are built on open communication and collaboration between franchisors and franchisees, allowing for plenty of input and feedback from you.

Ultimately, while you won’t have complete autonomy like you would with an independent business, taking on a franchise can give you a structured framework for success whilst growing your entrepreneurial skills!

Will I need to invest any money?

Whether you’ll need to invest money into a franchise business mostly depends on the specific franchise you choose and its requirements. Many franchises do need some kind of an initial investment, which can cover a range of expenses such as franchise fees, training, equipment, and marketing.

These costs can vary a lot depending on the brand, industry, and scale of the franchise. Some franchises offer financing options or help to secure funding, while others may require you to have a certain amount of capital upfront. It’s well worth researching everything so you can understand your financial commitments fully.

Ongoing fees in a franchise

Almost all franchises operate on the basis of royalty payments and ongoing fees, so you’ll need to think about how this affects your profit margin alongside your other operational costs.

These expenses contribute to the ongoing support and resources given to you by the franchisor, including brand development, advertising campaigns and ongoing training and support.

Before you commit to a franchise opportunity, it’s again really important to carefully review your franchise agreement and financial projections to see exactly what you need to pay, and to make sure you have the resources in place to keep your business going forward.

Learn more about our online accounting services for businesses. Call 020 3355 4047 to chat to the team, and get an instant online quote.

About The Author

Beth-Anne Karellen

I'm an experienced and fully AAT and ACCA qualified accountant, who is enthusiastic about helping business owners succeed. I also love cooking and needlepoint (at different times!). Learn more about Beth.

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