How to Evaluate Franchise Opportunities in the UK

What are the best franchise opportunities in the UK? Without a way to measure them, it can be difficult to tell.

Does the fact that many of the low cost franchise opportunities in the UK are so affordable make them worth choosing – or worth ignoring?

What of the many more expensive opportunities? Does being higher priced necessarily make them better?

How else – other than money – do you put value on what a given franchise can offer you? Here we present a number of different scales you can use to judge the best franchise for you:

How to Value a Franchise Company

1) Financial Evaluation

It might be the obvious one, but finding out more about the finances of the franchise opportunity you are interested in is a vital step before you consider joining.

This doesn’t mean broad questions about how franchises work. For instance, “are monthly franchise fees tax deductible?” is a common general question – as are others about franchise fee income tax treatment in the UK.

(The answer to this is that initial franchise fees are not tax-deductible, but ongoing monthly franchise fees count as a business expense and are tax-deductible.)

This is all general stuff related to franchise fee accounting treatment. It’s important to understand. But to evaluate individual franchises, what you really need to know about is:

a) Franchise Fee Structure

You need to know how the franchisee fee structure will work with any given franchise you might join. For example:

• Are you paying only a one-off initial fee to join?
• Is it one smaller fee and an ongoing monthly fee?
• Does the franchisor charge you extra fees for other services?
• Are there any advertising fund fees? Are those on top of the franchise fee or included?
• Does the franchisor charge for software usage or other licenses?

Once you know exactly what they are, you can compare these fees to other roughly equivalent franchises to see the differences in what they offer.

b) Financial Status

Even before you buy a franchise, you are usually allowed to see a great deal of financial information about the company offering it. These include both financial statements and the FDD (the Franchise Disclosure Document):

1. Financial statements – you should be able to view three years of audited financial statements. You should check that the network gets regular revenue from opening new franchises. But you don’t want initial franchise fees to be all of the revenue.
2. Check Item 19 of the FDD – Item 19 is the Financial Performance Representation. If there is a lot of information available here, it often indicates a franchise is happy to show you how well they’re doing.
3. Check Item 20 of the FDD – Item 20 should contain several tables which you can mine for useful information. Chiefly, you should check net franchise growth – how many new franchises are being opened against how many are being closed. This should show you how much a franchise is growing. You can also see “Franchises Sold But Not Open”. A high number here can imply a franchisor is selling franchises well but not putting the work into actually opening them.

2) Legal Evaluation

Concerns about a given franchisor’s legal status aren’t just the province of legal services franchises. The presence of any franchise legal issues – we’re talking about legal disagreements between franchisors and franchisees – is one easy way to see if a given network is a happy network.

If there are any legal disputes, what kind are they? For instance, you might ask:

• Is the franchisor taking necessary steps because a given franchisee is bringing the whole brand into disrepute?
• Or is a franchisee having to act because a franchisor isn’t providing the support they agreed to?

The existence of many legal issues relating to a firm can be a definite black mark against them. But do be sure to investigate what the cases are about before you write them off.

3) Training Evaluation

There are no two ways about it – a good franchise opportunity should come with training. You are starting your own business. But your franchisor should be able to teach you how to start your own business in a way which is going to be successful right from the start.

You should be able to view a franchise training manual or be given some kind of clearer picture of what the training you receive will include before you sign up.

The franchise training and support your potential network provides should ideally be:

• Fully comprehensive, including all aspects of operating the franchise you need to know
• A mix of on-site and classroom-based instruction
• Franchise online training can be a part of the whole, but not everything should be online
• Provided by not just the same person all the time
• Involve specialists from outside of the organisation if necessary

4) Territory Evaluation

A franchise exclusive territory means a geographical area which belongs to each franchisee alone.

As a franchisee, you should expect your franchisor to define what your exclusive area will be. You should also have the promise that your franchisor will not allow any other new franchisee who joins the network to operate in your area written into your franchise agreement.

Some franchises operate on different territory bases, usually called “exclusive”, “protected” or “open”. Beware of franchisors who offer limited open territories where all franchisees fight to secure business.

You want your franchisor and other franchisees to be bringing business to you. Not stealing it from you.

How to Evaluate Franchise Opportunities

Evaluating the financial, legal, training and territory aspects of each franchise opportunity you are considering is a sensible way of looking into all aspects of the way a network operates.

You might also want to talk to people who are already franchisees. Because if a network is happy for you to talk to their existing franchisees, it is usually a very positive sign indeed.

Want to talk to an expert about domestic cleaning franchise opportunities in the UK?

Let’s chat. Fantastic Services’ franchises give you access to the latest technological innovations and our online marketing – all conducted on your behalf – ensures you get a steady stream of clients every day.

We, of course, are more than happy for you to speak to any of our existing franchisees about what becoming part of the Fantastic family has meant to them.

• Last update: March 4, 2021

Posted in Industry Insights