How do Franchises Work to Make Money?

[Michael Logan]

There’s a lot of pressure on businesses to show evidence of a commitment to their communities and the environment. Companies worldwide work hard to meet these growing demands. For those looking to start up their own business, it can take time to tick these boxes while simultaneously making money. Starting a business can be one of the most complex and financially challenging decisions, but the rewards can be phenomenal. Entrepreneurs should consider all the opportunities available before starting a new business. Because of this, franchising is an increasingly popular solution: an ‘out of the box’ business with community and environmental measures in place.

Buying into a franchise is an excellent way of getting into your own business. Without the high costs and pressures, franchising makes business easy. This business model offers franchisees the opportunity to tap into a tried and tested company and, for established business owners, the opportunity to expand quickly with a minimum outlay of money and effort. These days, there are a vast number of franchise opportunities in every industry, from fast food to essential care, and in the UK, the franchise sector is worth a whopping £17 billion. As well as being lucrative, the franchise UK business model is considered recession-proof since it tends to deal in low-cost, everyday purchases. Despite 2020’s global pandemic, franchises thrived.

Once a business is established and has a proven customer base, the natural desire is to expand. While progressing a business can be fruitful, it can also be expensive and complicated – particularly when trying to break into international territories. For business owners, the benefit of franchising is that it allows their brand to multiply without the hassle and expense often associated with doing so. Franchising involves allowing individuals to buy into the business to increase the brand’s reach. For example, a successful hairdressing salon owner in London might offer a franchise opportunity in Manchester. This would involve an individual setting up a new salon in Manchester with the same branding, products, and ethics as the original business. An excellent example of this would be Headmasters, which now has 55 salons across the UK.

An entrepreneur has a lot to consider before buying a franchise. There’s no doubt that a franchisee will often be required to make a significant investment when purchasing into a franchise. The franchisee must pay this investment back to a bank or financial organization. While this is very much the case, the critical word here is ‘investment’ as significant income can come from a franchise business. When buying into a franchise, the franchisee will pay a lump sum of cash in the form of buy-in and start-up fees. These fees give the franchisee access to the company’s logo, branding, and all of the products, equipment, and support they need to get started.​​

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