What is a franchise, and is it the right move for your business?

In the UK, there are over 48,000 franchise outlets, employing over 700,000 people — business really is booming! 

But what is franchising, and how can you get a slice of the action? 

In this Bionic guide, we’ll walk you through everything there is to know about franchising and whether it’s the right move for your business.

What is a franchise? 

First things first, let’s get down to basics. A franchise involves a franchisor — also known as a business owner — who has developed a particular brand and has a proven track record of success, granting permission to a franchisee — also known as an independent operator — to use this concept. This gives the franchisee access to almost everything about the business, including: 

• Business name 
• Branding and trademarks 
• Business knowledge 
• Processes and operational methods 

In exchange for acquiring the franchise in a one-off fee, the franchisee usually pays the franchisor an ongoing percentage of sales revenue and licensing fees.

How does franchising work? 

Franchising is a great way of expanding a business and gives individuals the freedom to make a franchise their way — with a little bit of guidance, of course! Let’s break down all the exact steps of how franchising works.

The franchise agreement 

The franchise agreement is the legal backbone of the franchising process. It outlines the duties and responsibilities of both parties, including information on the duration of the franchise, renewal terms, operations guidelines and initial and ongoing fees.  

The agreement ensures the franchisor and the franchisee keep to the standards and practices laid out, providing a clear roadmap for the ongoing business relationship. 

Initial investment and fees 

Depending on the brand’s marketing value, the initial fee can range from a few thousand to several hundred thousand pounds. This fee will typically include the license to use the brand name, any trademarks and a thorough business model. 

Beyond the initial fee, franchisees can expect to pay for things such as premise costs, equipment, supplies and hiring staff before they’ve even opened their doors for business — but it’s best to double-check with the franchisor exactly what you will and won’t be paying for.  

The total initial investment can be substantial, and it’s crucial for potential franchisees to understand these upfront costs and what they’re getting themselves into.  

Royalties and other ongoing costs 

Setting up shop isn’t the only payment you’ll make to a franchisor. As a franchisee, royalties or other ongoing payments will be made, usually calculated as a percentage of your gross sales.  

These payments fund corporate support services and systems and the continued use of the brand and its resources.  

Training programs 

So, you’re all set up, but what now? Well, training is crucial and provided by the franchisor, designed to ensure that each franchise operates successfully and consistently across the board.  

With a dedicated training program, franchisees will be shown everything from operation techniques to management styles and customer service protocols. Depending on the type of franchise, you’ll also receive extra resources, such as food preparation help in restaurant chains.  

Brand compliance and quality control 

To protect the brand and ensure that every customer who walks through the door is satisfied, no matter the location, franchisors conduct regular quality control checks and compliance reviews. 

This could involve site visits, audits, and feedback sessions so that all franchisees operate the same way and meet the quality that customers expect.  

Expansion opportunities 

Successful franchisees often have the opportunity to purchase more franchises and expand their network.  

Some franchisors offer incentives for multi-unit developments, reducing fees or providing additional support for franchisees who are willing to take the leap.

What are the different types of franchises? 

There are a few different types of franchises, and it’s important to pick the one that best fits you.  

Job franchises 

Think of job franchises like your cosy, local coffee shop where the owner knows everyone by name. These are often smaller, more personal businesses you can run from mobile units or even your home! 

They’re perfect for those who want to be hands-on in everyday operations, such as cleaning services, plumbing or garden care. The investment isn’t usually too hefty, making this a great entry point for budding entrepreneurs. 

Investment franchises 

On the other hand, investment franchises will require a much larger investment. Picture big hotel chains or major fast-food restaurants where the owner invests a lot of money but doesn’t manage the day-to-day operations. Instead, they hire a team to handle the nuts and bolts.  

This type of franchise is ideal if you’re looking to put in capital and watch the investment grow while others see to its everyday running.  

Distribution franchises 

If you love the idea of selling products that already have a beloved brand attached — like specific auto parts or electronics — distribution franchises might be right up your alley.  

Here, the franchisee focuses on selling the franchisor’s products and leveraging the brand's pull to attract potential customers.  

Business format franchises 

If you’re looking for the full package, a business-format franchise is where it’s at. These franchises provide you with everything you need, from the brand name to how to run the shop floor. They’re popular in a whole host of industries, including food services, retail and even gyms.  

Conversion franchises 

Have you ever thought about taking an existing business and giving it a brand makeover? Well, that’s what a conversion franchise is. It’s a chance for independent businesses to switch up by adopting a bigger brand identity, which can help with marketing and operational efforts. It’s a great way to refresh your business with the power of a well-established brand behind you. 

What are the advantages of franchises? 

Jumping into a franchise can be a fantastic way to embark on a business venture, but what are some of the biggest perks that come with choosing this path?  

• Proven business model — One of the biggest draws of a franchise is that it takes all of the guesswork out. This means the business model has been tried and tested, proven across different markets, and can greatly reduce the risk compared to starting a business from scratch.  
• Comprehensive training programs — These programs cover everything from the day-to-day operations to handling your business finances and managing staff. They ensure you’re well-prepared before you even open your doors. This kind of training can be invaluable, especially if you’re new to owning a business.  
• Established customer base — Think of this as stepping onto a stage where a buzzing audience is already waiting for you. With a franchise, you benefit from a brand that has already built loyalty among its customers. People tend to gravitate towards what's familiar, so having a recognised brand can mean there’s already a stream of potential customers who trust and recognise what you’re offering.

What are the disadvantages of franchises? 

While franchises come with their fair share of perks, they also carry some challenges worth considering.  

• Initial and ongoing fees — When you enter into a franchise agreement, there’s typically an initial fee just to get started, which can be pretty hefty depending on the brand's popularity and proven success. But it doesn’t stop there! You also have ongoing fees, such as marketing contributions and royalties, which are often based on sales. These payments continue as long as you operate the franchise, which can eat into your profits. 
• Limited operational freedom — If you’re someone who loves creativity and making your own rules, you might find that franchising isn’t the best fit. Operating a franchise means you need to stick to a script — literally. The franchisor sets the rules for how you run the business, from the uniforms staff wear to the promotions and offers you can run and the suppliers you use. This ensures brand consistency across all locations, which is great for brand identity but not if you like to colour outside the lines.  
• Restrictions on selling the franchise — When you want to exit a franchise, it’s not as easy as just putting up a ‘For Sale’ sign and calling it a day. There are usually specific rules about how you can sell the franchise, who you can sell it to, and even how much you can sell it for. The franchisor often retains the right to approve a new owner, ensuring they meet the brand's standards and are a good fit for the franchise system.

Who owns a franchise? 

If it wasn’t obvious, the franchisor is the person who owns the intellectual property, patents and trademarks of the brand or business that is being franchised. 

The franchisee buys the rights to operate a franchise location in a certain place.  

So, while the franchisee would be the boss at their own location, making many of the day-to-day decisions, the franchisor holds the reins on broader business strategies.  

Learn more about trademarks and intellectual property for businesses.

What’s the difference between franchising and starting your own business? 

Jumping into franchising versus starting your own business is a bit like choosing between joining an already-established team or jumping in alone. Both paths lead to exciting adventures, but they offer different experiences and challenges. 

Franchising offers a ready-to-go business model with the backing of an established brand, providing a lower-risk investment along with a comprehensive support team.  

On the other hand, starting your own business offers complete creative and operational control, meaning you get all profits. But, it carries a higher risk due to the lack of proven systems and the fact there’s no brand recognition and you’re building from the ground up.  

Get set with Bionic 

Franchising offers lots of support and brand strength, but it also demands financial commitment and certain rules for ways of working. If you value a ready-made path with supportive rails and can handle the pressure, franchising might just be the perfect venture for you to go down if you run a business Not for you? Read up on how to start your own small business. 

If you’re looking for more help and advice, head over to our business insurance guides to find out everything there is to know about running a business. Or, get your business set with all your insurance needs.