What is a Franchise?

Find out how investing in a franchise business works

If you are thinking about becoming your own boss, you may have considered buying a franchise. But what exactly is a franchise, how does franchising work and what are the advantages of choosing a franchise rather than starting a business completely from scratch?

A franchise is a business opportunity that allows an individual or company, known as the franchisee, to operate using an established brand, business model, systems and intellectual property belonging to another business, known as the franchisor. In return for the right to use the brand and business model, the franchisee normally pays an initial franchise fee and may pay ongoing fees or royalties.

The franchisee owns and operates their own business, but agrees to follow the franchisor's established systems and standards. In return, they can benefit from training, marketing, operational support and the experience of an established franchise network. Franchising is oftendescribed as being "in business for yourself, but not by yourself".

Different Types of Franchise

There are several different types of franchise available in the UK, and they can vary considerably in terms of investment, responsibilities and the amount of support provided.

• Business Format Franchise

The business format franchise is the most common type of franchising in the UK. The franchisee receives a complete business model, including the brand, operating procedures, training, marketing systems and ongoing support.

This type of franchise is found across many sectors, including food and hospitality, cleaning, property, education, fitness, automotive, retail and professional services.

• Product Distribution Franchise

With a product distribution franchise, the franchisee primarily sells or distributes products supplied by the franchisor. The franchisee may have greater freedom over some aspects of running the business than under a traditional business-format franchise.

This model can be particularly suitable for businesses built around established products, specialist equipment or distribution networks.

• Manufacturing Franchise

A manufacturing franchise gives the franchisee permission to manufacture and sell products using the franchisor's brand, specifications, recipes or production methods. The franchisor provides the intellectual property and standards, while the franchisee handles local manufacturing and distribution.

• Management Franchise

A management franchise is designed for people who want to concentrate on managing a business, team or operation rather than carrying out all of the work themselves. The franchisee may recruit employees or contractors who deliver the service while they focus on sales, administration, customer relationships and business growth.

There are also different ways of owning a franchise. Some opportunities are designed for a single territory, while others may offer multi-unit, area development or master franchise opportunities. The right model will depend on the franchise, the investment available and the franchisee's ambitions.

What Are the Advantages of a Franchise?

One of the biggest advantages of franchising is that you are not starting with a blank sheet of paper. An established franchise can provide a proven business model, recognised branding and established systems, potentially reducing some of the uncertainty associated with starting an entirely new business. UK government guidance also identifies an existing customer base, established processes, and training and support as potential advantages of buying a franchise.

An Established Brand

Building awareness for a new business can take considerable time and money. With a franchise, customers may already recognise the brand, products or services, giving a new franchise territory a head start.

Training and Support

Many franchise businesses provide initial training followed by ongoing support. This can cover areas such as marketing, sales, finance, operations, technology, recruitment and customer service. This support can be particularly valuable to someone who has strong industry or management skills but has never previously run their own business.

A Proven Business Model

A good franchise should have already developed and tested its products, services and operating systems. Rather than having to work out every process independently, the franchisee can follow an established framework.

Marketing Support

Franchisees may benefit from national marketing campaigns as well as marketing materials and guidance for their local territory. This can provide resources that might otherwise be difficult or expensive for a small independent business to develop.

Access to a Franchise Network

Another important advantage is the opportunity to become part of a network of other franchisees. Sharing experiences, ideas and knowledge with people running the same business can provide a valuable source of practical support.

Is a Franchise Right for Everyone?

Although franchising offers many potential advantages, it is not a guaranteed route to success. A franchisee is still running a real business and is responsible for its performance. There are financial commitments, contractual obligations and operating standards to consider, and the franchisee may have less freedom to change the business model than an independent business owner.

Before investing, prospective franchisees should research the franchisor carefully, understand the full costs, read the franchise agreement and speak to existing franchisees. Independent legal and financial advice is also recommended before entering into a franchise agreement. HMRC notes that franchise agreements can involve an initial fee alongside continuing payments, which can be structured in different ways depending on the agreement.

Ultimately, franchising can offer an attractive middle ground between employment and starting a completely independent business. You have the opportunity to build your own business while benefiting from an established brand, business model, training and support network.

With hundreds of different franchise opportunities available across the UK, there are opportunities covering a wide range of industries, investment levels and working styles. The key is to find a franchise that matches your skills, financial circumstances, lifestyle and long-term business ambitions.

For anyone considering UK franchise opportunities, taking time to understand how franchising works is the first step towards making an informed decision.