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Digital Company Formation

Should I Consider Setting up a Franchise?

Researching Your Small Business Start Up

Things to consider before starting your own business

If you are wondering how to start a business, it is important to decide whether you are setting up a limited company or opening a franchise. Not sure which option is best for you? Here is some information to help you make up your mind.

When deciding what business start up is most suitable for you, it is best to first highlight what your existing skills and experiences are. For example, a person who has worked as an estate agent for many years wanting to establish his or her own estate agency is far more likely to succeed than someone entering a completely new business area. Further, if that person also intends a business start up for their estate agency in the same location where they worked for their former employer then their local knowledge will further enhance the chances of success. [See notes at bottom*] If, however, you do not have previous experience or cannot gain such experience by working in your selected entrepreneurial sector, then your business start up chances of setting up a limited company that is successful are greatly reduced and, perhaps, will lead to the consideration of a well-known successful franchise.

The British Franchise AssociationThings to consider before starting a franchise: What is a franchise? In simple terms a franchise is when a franchisor offers its business model/intellectual property to a franchisee in return for consideration (money). Most good franchisors will support their franchisees throughout both at the stage of business start up and further down the line, including company formation and company registration.

Is it better to buy a franchise or set up on my own? This is a difficult one to answer but certainly statistics indicate that franchisees are far more likely to be in business after 5 years than their non-franchisee counterparts. However, if you already have considerable business experience and do not feel that the added value of having an "established" brand name is sufficient then buying a franchise may not be for you. A completely independent business start up may be your best option.

Get independent advice: Never pay for any franchise without speaking to established franchisees who have been in business for a number of years - this way your personal business start up is more likely to succeed. It is also highly recommended that you try and purchase a franchise, which has been "vetted" by the British Franchise Association. Further, do not rush into anything during the company formation process and, in particular, make sure that you have subscribed to a few months worth of specialist publications such as Business Franchise Magazine. Taking this advice could mean the difference between a business start up that is destined to fail and a business start up which will last for years to come.

Is it difficult to raise finance? Well established franchises often have close connections with banks and other financial institutions, so raising money is often easier with a franchise than for setting up a limited company or any other independent business idea. The reason is simply that there is empirical evidence for lending institutions so they are aware of the potential risks, which would be more difficult to quantify for an independent enterprise no matter how good an idea.

Should I Consider a Franchise or Not?

 

Should I take out a franchise in my name or form a company? Generally it is better to register a limited liability company as this effectively separates you and your personal assets from those of the company. In addition, in most cases setting up a limited company is also better since UK corporate tax levels - especially for a business startup - are amongst some of the lowest in Europe and, significantly lower than for individuals.

You can visit DaltonsBusiness.com for a selection of franchise opportunities: www.daltonsbusiness.com

 
* However, one should always be aware of restraint of trade provisions that may exist in Contacts of Employment but case law would suggest that such caveats cannot be enforced beyond a 12 month period unless the employee was employed in very senior position with access to privileged information. It of course goes without saying that any information, client contacts etc. that may be known to a former employee cannot be used to quick-start a new business.