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What is a Franchise?

Sometimes when you want to start out in business, with an idea that’s not unique, it can be easier to buy into what is known as a franchise.

A franchise has an advantage of being an established business offering you the ability to trade under their brand.

Choosing to operate in a franchise can be limiting. While you won’t have the immediate requirement to register a business or to think about the intricacies, such as business names and the like, it may be worth weighing up whether setting up your own limited company may have benefits too.

What is a franchise: the benefits

Starting out in a franchise is often the choice for people who don’t want to take the risks associated with setting up on their own. With a lot of the thought process of starting a new business removed you’ll be trading under an established brand, with many of the learnings made for you.

  • A known name

As a franchise it’s likely that people will already have heard of your business name and will have some trust for it, delivering ready-made customers to your door.

  • A support network

You’re likely not to be the only one trading as a franchisee of your chosen brand, so you’ll walk into a ready-made network of people running the same sort of business as you.

  • Ready-made relationships

Your franchisor will have done much of the work in setting up relationships with other businesses – bankers, suppliers and the like – who can help.

  • Finding finance

You’ll probably find that investors will be more eager to invest in your company if it’s operating under an established name and business model.

What is a franchise: disadvantages

As a franchisee you’ll be tied to many of the business protocols and processes that your franchisor has set up. This means you’ll be less able to react quickly to local trends and needs, and you’ll have very limited control of how you operate. Other disadvantages may include:

  • Buying in

As well as the upfront investment you need to make into your franchise you may be expected to pay ongoing fees for support and training – all cutting into your own bottom line.

  • Cost control

Your franchisor may also stipulate the suppliers you use and these may not always prove to be the cheapest for you locally.

  • Reputation risk

As there may be other businesses operating under the same name – other franchisees as well as the franchisor – your reputation will be marked by anything that they do. All great while things are going well, but any negative press will also be associated with you.

  • A cut of the profit

As well as the ongoing fees you may have to pay your franchisor they’ll also expect a cut of the profits.

Starting out as a franchise: the alternatives

Offering you much greater control in the direction and success of your business, setting out alone can be a real and viable alternative. And registering as a limited company need not be difficult or costly when you choose to use a formations agent – offering quick turnaround, easy formation and they can be cheaper to use than registering direct with Companies House.

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