Is a Franchise Investment Worth It?
Frequently Asked Questions
Franchise fees vary enormously — from under £5,000 for home-based franchises to £500,000+ for major brand outlets. The BFA (British Franchise Association) estimates the average investment is around £40,000-£80,000 for established franchises.
Royalty rates (management service fees) typically range from 5-15% of gross sales. Some franchises charge a flat monthly fee instead. Marketing levies of 2-5% may be charged separately.
Industry benchmarks suggest 15-25% ROI is considered good for a franchise. Below 10% may not justify the risk and capital tied up. However, ROI varies hugely by sector and individual location.
2-5 years is typical for a well-performing franchise. High-investment franchises (£200,000+) may take 5-7 years. Always check the franchisor's average franchisee earnings disclosure.
Key terms: territory protection, renewal rights, exit/resale conditions, marketing fund obligations, performance targets, training support, and what happens if the franchisor goes bust.
No. Franchise fees are generally standard-rated for VAT. If you're VAT-registered, you can reclaim input VAT on the franchise fee. The ongoing royalties are also usually VATable.
Yes. Major high-street banks (NatWest, HSBC, Lloyds) all have franchise lending teams. Many established franchise systems have pre-approved lending relationships. Typically you need 30-50% of the investment as equity.
The BFA is the UK franchise industry's self-regulatory body. BFA-accredited franchises have met standards of ethical franchising. Membership is voluntary but provides a level of assurance.
Most franchise agreements allow resale, subject to franchisor approval of the buyer and a transfer fee (typically 5-10% of sale price). Franchise resales can be good value as they come with an established trading history.
Depending on structure: income tax (sole trader/partnership), corporation tax (limited company), VAT (if registered), business rates, and PAYE/NIC for employees. Franchise fees and royalties are deductible business expenses.
Ask for the franchisor's earnings disclosure, speak to existing franchisees, review the accounts of comparable franchise units, and commission an independent due diligence report.
According to BFA surveys, around 93% of franchisees report profitability. However, this is self-reported by BFA members (positive selection bias). Independent analysis suggests failure rates of 10-20% for franchises overall.