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Buying a Franchise

By: J.A.J Aaronson - Updated: 12 Oct 2012 | comments*Discuss
Franchise Buying Franchisee Franchisor

Thousands of people across the UK are considering buying franchises. Franchises have become an increasingly popular choice amongst those who wish to work for themselves, but who do not want to spend the time and money required to build a business from scratch.

But buying a franchise is a big step – and it can be an expensive one. You need to make sure that you understand your rights and responsibilities, and that you do not rush into a purchase.

Choose Carefully

Choosing your franchise is the most important step towards building a successful venture. Your choice will depend on a wide variety of factors, including your own expertise and the amount of money you have to spend.

Franchises are available at a range of prices, but many of the most successful or high-profile businesses require initial investments of tens of thousands of pounds.

Aside from price, you should also consider whether or not you would be happy doing the work that the business would require. For example, if you are a trained electrician your talents would probably be better used in a related franchise than in a burger business.

Get Your Finances in Order

Securing finance for your franchise can be a difficult task. Some franchisees use their own savings for the initial investment, but many simply do not have the capital available. This means you will probably need to approach a bank or other lender.

It is worth trying to get your finances in order at an early stage. Consider contacting a bank as soon as you have identified a potential franchise. You will then be able to find out whether or not, in principle, they would extend credit for you to invest. If not, you may need to consider other options.

Examine the Agreement

The franchise agreement is the cornerstone of your relationship with the franchisor, and is a vitally important document. You must ensure that you look through this document with a legal professional, who will be able to explain the precise nature of the agreement.

Your rights and responsibilities are defined in the franchise agreement, so you must ensure that you are happy with it before signing. It may outline, for example, whether or not the franchisor is obliged to provide you with leads; this can be a crucial concern for your business. Take some time to consider the implications of this agreement.

Choose Your Legal Structure

Your choice of legal structure is another particularly important step, and one that can have lasting implications for your business.

Broadly speaking, you might choose to operate as a sole trader, a limited company, or a partnership. Each has its own advantages and drawbacks; for example, sole traders have a relatively low paperwork burden, but limited companies provide directors with protection from liability.

Some franchise agreements require the franchisee to operate under a particular legal structure. You should make sure that you understand any such requirements when looking through the agreement.

Buying a franchise can be a great way of working for yourself. Make sure that you consider all of the potential implications before making the leap, and always seek legal advice.

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