Franchise questions and answers - help with franchise problems
Read past franchising questions and answers
Question: When you buy a franchise, does the franchise fee only cover a certain period, e.g. 10 years, meaning that you are buying a franchise licence for just 10 years? Then after the 10 year period, if you still have a store running, you have to pay the franchise fees again?
I feel that it is very one-sided term. If you still have a store and have invested £100k+, then you are left with no option but to pay the asking renewal franchise fees.
It would be appreciated if you could clarify whether this is common for franchise business or not.
Answer:It is usual, certainly with franchise brands that are members of the BFA, not to charge renewal fees or only to charge a small fee to cover any legal expenses involved with renewal of your franchise agreement. The logic being that if the franchisee is trading well and paying regular on-going fees to the franchisor why would an ethical franchisor wish to penalise the franchisee for remaining within the system.
If you are considering a franchise that charges high renewal fees then you should seriously consider whether this is fair and whether it is ethical and speak to a BFA accredited solicitor about this.
Franchisors of course do have the right not to renew when a franchise agreement expires if the franchisee has not fulfilled their obligations under the terms of the agreement or is in breach of the agreement - which usually means owing them money. Any renewal will be using the then current form of the Franchise agreement not necessarily the version originally signed.
Question: I bought into a franchise last year focusing on a children's activity group. I launched my classes in June and had a small uptake but over the months nothing substantial. I have approached schools and nurseries in more than one occasion during this period to get contracts but again have had very little interest. I have done all that the franchise directors have suggested and others franchisees who have been running the same amount of time as me, or less, are having a lot more success. I have now looked at the other children's activities in my operating territory and there are a lot (although when I discussed competitors with the franchise director when deciding on my territory it was advised that successful competitors are good because it shows the business can work).
I would just like some general advice on how long to keep trying with a franchise. I knew the first year would be hard but I didn't anticipate this hard. I'm not sure where to start in thinking of other ideas for marketing or whether I am 'throwing good money after bad'.
Answer:The launch period for your particular franchise , focusing on children and based on gaining admission to the market with schools and nurseries, is often dependent on starting at a certain time of the year when the Head makes a decision for the next academic year and so a first observation would be that you should not give up yet because it's possible you started a little late in the day last year and what you really need to do is give it a strong push between now and the end of the normal school year seeking to replace some of those who are already imbedded in your target customer schools or to win new schools over to the proposition.
There will almost certainly be an obligation on the franchisor within your franchise agreement to provide you with on-going support. Is this forthcoming? If not, you could ask your franchisor to support you in the sales process with a business development manager to give you further confidence at a time when your business energy is at a low ebb and indeed to perhaps give you some pointers to the way in which to position your concept that you may not currently have considered.
Regarding your initial investigation into the market, I do just wonder if there was perhaps an element of optimism in thinking that because there were already quite a number of competitors there would be opportunity for you, however, given that there are only a finite number of target customers / school locations in your territory? Did you consider that with the franchisor? Have you shadowed another successful franchisee in their business development activities? Have you made your feelings known to the franchisor about the area you are operating in being congested with competition with a view to them perhaps tacking on adjacent post codes or area to give you some new opportunity bearing in mind the forecast revenues?
When you prepared your original business plan with the franchisor was it based on your research or on their suggestions? If the former, then did they endorse it as credible? It seems that this is a successful franchise elsewhere so it may be about your interpretation of the training that you have received, in which case you should ask the franchise or to spend more time with you reinforcing proven methods or it is about the competitive problem that we have suggested an approach to? In either case, you should seek support from the franchisor as it is in both your interests for you to succeed of course. I assume this is a reputable franchise?
Your ultimate course of action is to consider whether while taking on the franchise the franchisor made promises and assurances to you that were untrue, for example regarding the likely turnover you may achieve or the potential of business within the area. If this is the case, you may be able to look to get out of the franchise and seek to recover any losses you have suffered from the franchisor.
Nick Williams, Ashtons Consulting
Question: I am interested in investing in an estate agency franchise. I am in fulltime education and have a part time job. The initial cost of the franchise is £22,500. I can invest 30% of the initial investment, would the bank fund me the rest 70% that I require, based on my profile?
Answer:Most franchise opportunities will require you to devote all of your efforts in developing the business whilst there are a few that can be operated on a part time basis to fit around your existing commitments. Without knowing the brand you are researching it is difficult for me to provide guidance however generally speaking I would suggest it would be a challenge to operate any business successfully whilst trying to balance your full time studies and a part time job. I suspect that the bank would need a great deal of convincing that you could successfully build the business with your other commitments and funding the cost of the franchise investment would therefore be unlikely under these circumstances.
If your circumstances were to alter and you decide to devote your full attention to the franchise then any financial request will be subject to a full review of your business plan. The strength of the franchise brand that you are investing in, your own skills and attributes as well as the local market will be key considerations for the bank in proving the funding required. Please feel free to give me a call on the mobile number quoted below if you have any further questions or require any guidance.
Richard Holden, Lloyds Bank
Question: Do franchisors have an obligation to see that their franchisees have a pension in the same way that we have to ensure our employees have a pension?
Answer:Franchisors have no obligation to set up a pension scheme for franchisees as a franchisee is an independent business person – it’s their own responsibility.
Euan Fraser, AMO Consulting
Question: Could you possibly advice the pros and cons of buying a pilot scheme compared to an established franchise.
Answer:There are benefits attached to being a pilot franchisee such as:
- Low cost: The price of a pilot franchise is often less than post pilot franchises.
- Dedicated support: being the franchisor’s initial unit, the franchisor will try his best to make it successful. He may devote more time and support to his pilot franchisee. Moreover, the pilot franchisee can get individual attention in his business. The success of the franchise may depend on the performance of the initial franchisee.
- Becoming a master franchisee: In many cases, the pilot franchisee will be offered the option to become a master franchisee.
- Experiencing more negotiating ability at the outset: The pilot franchisee often enjoys a lot of leverage, which may not be offered to later franchisees. He may enjoy more freedom in selecting his territory compared to others and can agree a more competitive management service fee initially. Sometimes a break option can be agreed by the parties should the pilot prove to be unsuccessful.
- Strong relationship with franchisor: The Pilot franchisee can often have a better relationship and more direct communication with the franchisor. He can usually communicate any issues more openly to the franchisor.
Drawbacks of a pilot which are the benefits of buying an established franchise include:-
- A less well established brand
- An unproven franchise model with more risk attached
- Less negotiating power
David Kaye, Harper Macleod
Question: I am looking to put my franchise up for resale, how do I go about valuing it?
Answer:Most businesses are valued by calculating the Sustainable Transferable Operating Profit figure produced by the business. This is sometimes called Adjusted Profits or in larger businesses referred to as Earnings Before Interest, Tax, Amortisation and Depreciation (EBITDA). This value then has a multiple applied to it depending on the type of business is being sold. With a B2C operation such as yours the typical multiple would be between 1.5 and 3.0 times this calculated figure depending on the buyers view of how the business is performing.
If the business is only trading at breakeven or is loss making then the value is much more of an arbitrary number agreed between the buyer and seller based on the value of the assets of the business. Some franchisors will charge fees to the incoming franchisee and most purchasers will take this into account when making an offer for a particular business.
The key point is that there is no such thing as the ‘correct value’ for a business. The value is that which a purchaser can see in the business and is prepared to pay.
By Derrick Simpson, Franchise Resales
Question: I love travelling and would like to combine this passion with business as I believe that I would be successful at it. Is buying a travel franchise a good idea?
Answer:Firstly I would say that in general, having a passion for the business you are in is always desirable. Read more on buying a travel franchise
Question: How do I get funding to open a fast food franchise shop in the UK?
Answer:Firstly, and without hesitation, I would recommend that a prospective franchisee approach at least one bank with a dedicated franchise team. Choosing the right Bank will save time as they should have a strong understanding of the chosen franchise and that past experience is not always a necessity. Read more on funding for a fast food shop
Question: What experience do I need to start a plumbing franchise?
Answer:Most plumbing franchises do not look for specifi plumbing skills as they will train you in all aspects of their business including allowing you to become a qualified plumber. Read more FAQS on plumbing franchise opportunities
Question: Where is the best place to find examples of franchise opportunities?
Answer:Due to the number of big, well-known brands that are food franchises, we get asked a lot about starting a food franchise. Read more on the food franchise opportunities
Question: Where is the best place to find examples of franchise opportunities?
Answer:When doing your research into franchise opportunities availble, there are three main avenues that provide details of franchises for sale. Read more on the examples of franchise opportunities
Question: What are the advantages of buying a franchise over starting my own business from scratch?
Answer:Buying a franchise should bring some key advantages over starting your own business from scratch. Read more on the advantages of buying a franchise
Question: I’ve noticed that there are several hotel franchise opportunities available in the UK. How does this work? Do I need the full money to open one hotel? Can I ask others to invest?
Answer:A hotel franchise is usually referred to as an investment franchise. It will require a large investment, possibly in excess of the resources of an individual. Read more on buying a hotel franchise
Question:I’m confused by the different franchise fees – what do they mean?
Answer:There are several differences between an independent business and a franchise business; the fees associated with being part of a franchise system and how the franchisor makes money seem to be the most salient. Read more on the franchise fees
Question: I've been looking at various franchise opportunities and during my research I noticed that there is a franchise exhibition taking place shortly. What are the benefits of attending a franchising exhibition?
Answer:A franchise exhibition allows you to talk, face to face, with franchisors and possible franchise owners. It is the ideal place to see a number of brands under the one roof. Read more on the franchising exhibitions
Question:How important is it to have a Business Plan when starting up a franchise?
Answer:Having a well researched and logical business plan is not just relevant at the start of the franchise, it is just as important as the franchise develops to keep it on track when it is up and running. Read more on the business plan
Question:What is the cost of buying a franchise?
Answer:The cost of buying a franchise varies depending on which franchise opportunity is selected. Read more on cost of a franchise
Question:What is a Franchising Agreement?
Answer:This is a document between the franchisor and the franchisee that regulates the relationship and is a legally binding contract between the parties setting out the rights and obligations of each party. Read more on the franchise agreement
Question: I am interested in buying a coffee franchise and want to know which the best coffee franchise in the UK is? And is buying a coffee franchise a good choice?
Answer: Coffee franchises in the UK are more popular now than ever before. There are many coffee franchises for sale in the UK. Our Coffee Franchise FAQ section may be able to answer some of your queries. Read more on buying a coffee franchise
Question: I am interested in a Burger King franchise and wondered if you can help me with some questions I have? Firstly, does Burger King franchise in the UK?
Answer: Yes you can own a Burger King Franchise in the UK, however Burger King looks for partners who can open up a number of units. Read more on Burger King franchise
Question: Which is best - a Pizza Express franchise or a Perfect Pizza franchise?
Answer: You need to put together a list of all pizza franchises available in the UK and research each one individually. There are several that are members of the British Franchise Association. Read more on pizza franchises
Question: I am interested in opening my own convenience store and interested in Bargain Booze. How do I become a Bargain Booze franchisee?
Answer: Bargain Booze is franchising in the UK. They require you to have suitable shop premises to open a Bargain Booze franchise. Read more on Bargain Booze franchise
Question: I am really interested in buying a pound shop franchise in the UK - is Poundland my best option?
Answer: Sadly there are no pound shop franchises for sale in the UK. The big name pound stores are all corporate owned. Read more on poundland franchises
Question: After just arriving back from the US and witnessing the popularity of doughnut franchises over there, I would love to own a franchise like Krispy Kreme or Dunkin Donuts. Where can I find information on doughnut franchises in the UK?
Answer: Unfortunately unlike in the US where donut franchises are very popular, there are limited opportunities to own a donut franchise in the UK. Read more on donut franchises
Question: Is Chicken Cottage a popular fried chicken franchise choice in the UK?
Answer: There are many chicken franchises in the UK. The popularity of chicken across cultures has made chicken a popular choice when it comes to food franchising. Chicken Cottage is one brand of chicken franchises currently expanding in the UK. Read more on Chicken Cottage franchise
Question: I would like to buy a Caffe Nero franchise, or are there any better coffee franchises in the UK?
Answer: Caffe Nero does not franchise in the UK. Read more on coffee franchises
Question: I've been trying to find out about Greggs franchise opportunities, but can't find anything. Can you tell me where I should be looking?
Answer: This is a question we get asked a lot but unfortunately Greggs is not a franchise. Read more on Greggs franchise
Question: I am considering buying a fonehouse franchise. What are the benefits of owning a fonehouse franchise in the UK?
Answer: fonehouse is a mobile retailer with franchises throughout the UK. Read more on fonehouse franchise
Question: I have been researching the Mr Simms Sweet Shop franchises and want to know if I can buy a Mr Simms Sweet Shop franchise in the UK?
Answer: Mr Simms Olde Sweet Shoppe franchises are available in the UK. Read more on Mr Simms franchise
Question: Where can I find information on buying a Nandos franchise in the UK? Is this best chicken franchise to buy?
Answer: Unfortunately Nandos is not a franchise in the UK, and currently does not have plans to franchise in the UK. There are other chicken franchises in the UK. Read more on Nandos franchise
Question: Does Starbucks franchise in the UK? I didn’t think they did but I have heard a rumour that they may start franchising in the UK?
Answer: Yes you are correct. Starbucks has recently announced that they will open their first Starbucks franchise in the UK before the end of the year. Read more on Starbucks franchise UK
Question: I am interested in buying a kfc franchise. I know I have the experience to open a kfc franchise as I already run a successful McDonalds franchise in the UK too. How much will it cost me to open a kfc franchise? What other requirements are there?
Answer: Firstly, kfc will not allow you to open one of their franchises as you run a franchise that they consider to be in direct completion with them. Read more on opening a kfc franchise
Question: I have a client who owns an upmarket jewellery shop, and has identified a possible franchise opportunity. Can you advise on a professional who could advise of franchise fees etc.
Answer: There are a number of consultants who are able to assist you with establishing the correct fee structure and operating systems for a new franchise and some of these are close to where your client is based. The very best place to find a list and contact details is the website of the British Franchise Association which is www.thebfa.org. Here under the sub-heading of Professional Advisors you will find a full list of all bfa accredited consultants and advisors so you are able to make contact and choose the one that suits your requirements.
I must flag here a “health warning”. There are a few non-bfa members advertising on the internet generally who purport to provide franchising advice. The purpose of the bfa is to provide a standards based organisation that accredits experienced franchise professionals as consultants. They restrict consultants’ membership to those who have a proven track record of providing ethical advice and will not allow into membership anyone whose activities are questionable. That is not to say non-members are unprofessional or unethical it is simply a note to tread carefully if you appoint a consultant who is not a bfa member. Derrick Simpson
Question:I am considering buying into a franchise opportunity in the near future.
I am keen on the oven cleaning service market. Do you think there is good potential in this product? Do you think or have any evidence that the service providers are already over populating the market.
Have you any suggestions regarding the better franchise providers.
Answer: Certainly I believe the Home Services market is a strong one and one that has been fairly stable throughout the economic down turn. Within that arena Oven Cleaning, like the residential cleaning market in general, has always done well and if you wish to be involved in a practical, service driven operation then it is well worth considering. Read more of this answer regarding oven cleaning franchises from Derrick Simpson
Question:Are we able to promote/advertise the availability of our franchise as a Master Franchise Opportunity in the US before we meet the US government disclosure requirements?
Answer:Disclaimer first. I am not an attorney and your client should speak with one before taking any such advice from a non-attorney.
Complicated question. At the federal level, nothing would prevent them from advertising. Technically, they would need to provide FDD on reasonable request. There is no registration requirement at the federal level. Read more of this answer regarding international franchising from Mark Siebert
Question: Hi, I am trying to become a Master Franchisee of a Scottish company and take it to Canada. Could you please give me advice on the fundamental steps and essential requirements needed in order to achieve this?
Answer:Thanks for your enquiry. You’re in a slightly unusual position in that you’re based in Scotland and taking a master franchise from a company here, but planning to take Canada as your territory and move there to run the new business. Read more of this answer regarding franchising in Canada from Angus MacLeod
Question: I am looking at investing in a Pest Control Franchise. Could you tell if there is an industry 'average' of 'royalty fees' that are charges per month by Franchisors?
Answer: The range of monthly service fees varies widely between different types of businesses, depending on turnover, profitability and margins. The fee will also reflect the level and range of services provided by the franchisor.
You will need to speak to the Franchisor and existing franchisees to gain an understanding of what you will receive in return for this fee. There may also be an additional advertising / marketing fee. Again your research should determine if this is the case.
There is no industry average as such but whilst carrying out your research it may be useful to find out what other franchisors in your chosen sector are charging to enable you to make a comparison.
Question: I'm looking at buying a franchise and one aspect of the agreement I would like some information on is the term. The franchise has a 5 year term with provision for renewal for another five years. I wanted to find out how normal this is as it gives me various concerns including:
1) The renewal has to be on their then current franchise which could have new - less favourable terms
2) They could use this as a way forcing a change in their business model - even moving away from franchising
3) It must make it more difficult to sell on the franchise?
Answer: 1. In my experience it is usual for a franchisor to impose a renewal condition that you must agree to the terms of their latest form of franchise agreement.
2. You are correct. In addition, the franchisor will usually be able to change the system by altering the operations manual. However, depending upon the terms of the franchise agreement, it would probably be difficult for the franchisor to make fundamental changes to the franchise offering.
3. Franchises are often more difficult to sell than, for instance, a stand alone trading business because of the constraints of the franchise agreement.
The above is general guidance only and should not be relied upon in the absence of proper legal advice on the franchise agreement as a whole.
Question: My husband is looking into a franchise to deliver food in a specific territory. The contract indicates that after 5 years there will be another fee. But we are paying now a fee to get the territory. Is it normal that the franchisor is asking for more after a set amount of time? South West
Answer: Yes, this is common place. The initial Franchise fee is a one off payment to buy into the business and reimburse the Franchisors costs and a typical franchise agreement usually lasts for a minimum of 5 years then if you decide to renew after the end of this period, a fee may be payable to reimburse the Franchisors legal costs. A monthly service fee is also normally charged as a fixed fee or a as a percentage of turnover.
Question: As a franchisee do I have any protection under the law should my franchise contract prove to be too restrictive or unfairly biased towards the franchisor? Will signing the contract make me legally bound to any and all aspects of the contract should they prove to be damaging to my business?