If you’re looking at investing in a new
franchise, make sure it has run at least
one pilot operation (preferable more,
covering several different areas), unless
you have a high appetite for risk.
FRANCHISE AGREEMENT/
CONTRACT
The legal contract between the
franchisor and the franchisee, setting
out the obligations and rights of both
parties. Note that this is not like a
contract of employment, but is a civil
contract that can only be challenged
under civil law, which is potentially
costly.
It’s worth getting the terms explained
by a franchise specialist lawyer before
you sign.
FRANCHISE TERM
Set out in the contract. Your right to run
your franchise doesn’t last forever.
Initial terms are usually for five to
10 years, though some are 25. Renewal
options are usually included, offering
you the chance to opt out at the end of
each term.
LAUNCH PACKAGE
Usually part of the overall franchise
package. Typically includes local
(sometimes national) media
marketing, champagne, balloons,
maybe even a celebrity and flooding
your area with leaflets about your
business offerings. Expect to see
yourself in the local press.MULTI UNIT
FRANCHISING
Running more than one outlet of the
same franchise, most commonly in
neighbouring areas.
Most franchisors expect you to
demonstrate success in one area
before allowing you to invest in
another one. Some franchisors,
however, welcome investors
seeking to go multiple right away,
but investments are inevitably
higherRESALE
A franchise that’s being sold as a going
concern often because the existing
franchisee wants to move on or retire,
but find out why.
Buying a resale requires a higher
initial investment to cover goodwill
(intangibles such as the existing
customer base), but with a resale
your business is up and running
immediately.Franchise fee. Not to be confused with the total
franchise investment. The franchise fee is only
the initial fee you pay to the franchisor to gain
access to its brand and franchise system. (You
may have to pay VAT on top.)
Watch out, because in the UK there is no
standardised way in which franchise costs
are advertised. Some franchises publicise the
franchise fee alone, even though you also need
to budget for much more expenditure on top of
that.
You need to know the likely total investment
required, including equipment, working capital
and other start-up expenses. Ask the franchisor
for the total investment figure.
Management fees. Most franchises charge
monthly management fees, typically around
10-12 per cent of your monthly turnover (though
some charge a flat fee).
Marketing or advertising fees. Monthly
payments to the franchisor to cover your share
of the cost of national brand marketing.
Liquid capital. The amount you need in ready
cash to invest in a franchise - often 30 per
cent of the total investment required, because
banks will commonly lend the extra 70 per
cent to creditworthy franchisees of established
franchises.
Working capital. The money you’ll need in order
to be able to pay your business and personal
bills until the franchise returns enough to do so,
which typically takes 18-24 months.FINANCIAL TERMS