Franchising in the UK: what the glossy prospectus leaves out

Franchising occupies an appealing middle ground between employment and raw entrepreneurship. The franchisee buys a proven format, a known brand and an operations manual, and in exchange accepts rules and fees. Tens of thousands of UK businesses run this way, from fast food and coffee to domestic cleaning, tutoring and van-based services, and plenty of franchisees do well. The difficulties tend to come from the parts of the model the recruitment brochure does not dwell on.

Start with the fee structure. Beyond the upfront franchise fee, ongoing royalties are almost always charged as a percentage of turnover, not profit, with a marketing levy on top. The franchisor is paid from the till before rent, staff, stock or the franchisee's own drawings. A franchisee can work a full year at a loss while the franchisor earns from every sale. That is not a scandal in itself, but it means the two parties' incentives diverge exactly when things get hard.

Then there are tied supplies. Many agreements oblige franchisees to buy stock, equipment or services from the franchisor or its nominated suppliers, sometimes at prices above the open market, with the margin flowing back to the franchisor. The operations manual, which the franchisee never sees in full before signing, can impose costs the headline figures omit: mandatory refits every few years, new technology platforms, minimum staffing levels.

The contract is the relationship

Unlike some countries, the UK has no franchise-specific legislation. There is no statutory disclosure document, no cooling-off period peculiar to franchising, no regulator. The British Franchise Association sets standards for its members, but membership is voluntary. Everything that governs the next ten years of the franchisee's working life sits in a contract drafted by the franchisor's lawyers, and franchise agreements are notoriously one-sided: termination rights that favour the brand, resale only to approved buyers at approvable terms, post-exit non-compete clauses that can bar the franchisee from their own trade in their own town.

The diligence that protects people is unglamorous. Ask the franchisor for the numbers behind their earnings illustrations, and ask what an average unit, not a flagship, actually makes. Get the agreement reviewed by a solicitor who works on franchises specifically. Above all, speak to franchisees at length, including ones who have left. High unit turnover in a network is the single most honest indicator available, because franchisees who are making money very rarely walk away from it.