Do I need a business plan if the franchisor gives me one?

Yes. The franchisor's projections are an average across the network. A lender wants a plan for your unit, with your rent, your staffing and your territory, and the process of adjusting their figures is also the best due diligence you can do before signing.

How much does it cost to buy a franchise in the UK?

Anything from a few thousand pounds for a home-based service franchise to several hundred thousand for a food or retail outlet. The initial fee is often the smaller part; fit-out, equipment and working capital make up most of the total.

What is a typical franchise royalty in the UK?

Management service fees commonly run at around 5% to 10% of turnover, with a separate marketing levy of around 1% to 4%. Both are usually charged on sales, not profit, so they need to be modelled as part of the cost of every sale.

Will a bank lend more for a franchise?

Often, for an established brand with a proven record, because the lender can see how comparable units have performed. You will still need a personal contribution, and a plan that shows you have tested the franchisor's numbers rather than copied them.

Is franchising regulated in the UK?

Not by franchise-specific law. The relationship is governed by the franchise agreement. The British Franchise Association runs an accreditation scheme and ethical code for its members, but it is a trade body rather than a regulator, so have the agreement reviewed by a specialist solicitor.

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Franchise Business Plan

A franchisor will hand you a set of projections, and most franchise plans are those projections with a new name on the front. That is the mistake. The franchisor's figures describe an average across sites that may look nothing like yours, and the fees come off the top whether or not you hit them. This guide covers building a plan for your territory, and what a lender checks before funding a franchise.

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Written by Clive Unitt FCA, Founder & Chartered Accountant

What a lender looks at first

Lenders like franchises, which is why most high street banks run a franchise team. They are not lending against the brand, though. They are lending against your unit, and they read the plan to find out whether you have tested the franchisor's story or simply repeated it.

Whether the numbers are yours or the franchisor's. A forecast lifted straight from the franchise prospectus is the most common weakness, and the easiest to spot. Lenders see the same brand's projections from several applicants. What they are looking for is evidence that you have adjusted them for your territory, your rent and your staffing, and checked them with franchisees who are already trading.
Profit after every fee, not before. The management service fee and the marketing levy are charged on turnover, not profit, so they bite hardest in the months when trade is weakest. A plan that shows healthy margins before fees and thin ones after is telling the lender something important.
The franchisor's own health. If the franchisor fails, the support, the supply chain and often the brand go with it. Lenders look at the franchisor's filed accounts, how long it has been franchising, and how many units have closed or changed hands. You should look first.
Your stake in it. Even where a franchise lender will fund a high proportion of the total, it expects you to put in a meaningful share from your own money. That is partly security and partly a test of commitment, and the plan should say plainly where your contribution comes from.

Typical startup costs

The initial franchise fee is usually the smallest large number in the budget. The fit-out, equipment package and working capital are where the money goes, and many of those are specified or supplied by the franchisor, which limits your room to shop around.

Cost	Typical range	What drives it
Initial franchise fee	£5,000 – £50,000	Buys the licence, training and launch support. Check exactly what is included, and whether VAT is added on top.
Premises fit-out	£0 – £250,000	Nil for a home or van-based franchise. Retail and food units are usually fitted to the franchisor's specification by approved contractors.
Equipment and vehicle package	£3,000 – £80,000	Often supplied by the franchisor. Compare the price to buying the same kit independently, and check whether you may source it elsewhere.
Opening stock	£2,000 – £30,000	Usually bought from the franchisor or a nominated supplier, sometimes at a mark-up.
Legal and professional fees	£1,500 – £5,000	Have the franchise agreement reviewed by a solicitor who specialises in franchising before you sign. It is the least optional line on this list.
Launch marketing	£2,000 – £15,000	Separate from the ongoing marketing levy, and often a contractual requirement.
Rent deposit and legal costs on the lease	£3,000 – £30,000	Some franchisors hold the head lease and sublet to you. Know which arrangement you are signing.
Working capital	£10,000 – £60,000	Covers wages, fees and rent while trade builds. Ask existing franchisees how long their first site took to break even.

Indicative UK ranges. Franchise investments run from a few thousand pounds for a van-based service to several hundred thousand for a food outlet, so read these as a checklist of lines to budget for rather than a total.

The numbers that decide whether it works

These are the figures a lender turns to first, and the ones SquarePlan calculates for you as you enter your sales and costs.

Management service fee: The ongoing royalty. Because it is taken from sales rather than profit, model it as a cost of sales, not an overhead. Some franchisors charge a fixed monthly fee instead, which suits a high-turnover unit and hurts a slow one.
Marketing levy: Pays for national brand marketing. It is useful, but it is not local marketing, and your plan will usually need a separate local budget on top.
Net margin after all fees: The test of whether the brand is worth what it costs. If an independent version of the same business in the same unit would make materially more, the brand has to be bringing in enough extra trade to justify the difference.
Months to break even: Take the franchisor's figure, then ask several trading franchisees what theirs actually was. The gap between the two is the most useful single number in your due diligence.

What you are signing up to

There is no franchise-specific legislation in the UK. The relationship is governed almost entirely by the franchise agreement, which is a contract drafted by the franchisor. That makes the agreement, and your understanding of it, part of the business plan.

The franchise agreement: Sets the term, the fees, the territory, what you must buy and from whom, and what happens when you want to leave. Read the renewal, termination and restrictive covenant clauses with particular care: they decide what the business is worth when you come to sell it.
British Franchise Association membership: The bfa is a trade body, not a regulator. Its members sign up to an ethical code and are assessed before joining, which is why some lenders treat accreditation as a positive signal. It is a useful filter, not a guarantee.
Territory and exclusivity: Check whether the territory is genuinely exclusive, how it is defined, and whether the franchisor can sell online or through other channels into it. A territory that can be eroded is a forecast that can be eroded.
The licences the business itself needs: The franchise does not replace the ordinary regulation of the trade. A food franchise still registers with the local authority, a care franchise still registers with the CQC, and a franchise employing staff still carries every employer obligation.

Start with the franchisor’s numbers, then take them apart

Every serious franchisor will give you financial projections, and most will be honest as far as they go. The problem is what they are an average of. A network figure blends mature sites with new ones, strong territories with weak ones, and owner-operators who work seventy hours a week with managed units that do not. Your unit will be one specific combination of those, and the plan has to be about that combination.

Take each line of the franchisor’s forecast and ask what it depends on. Turnover depends on footfall or population in your territory, and on how long it takes to build. Wages depend on whether you are working in the business or managing it. Rent depends on the unit you can actually get. Change those to your own figures and the forecast often looks rather different, sometimes better and quite often worse.

Talk to the people already doing it

The best evidence available to a franchise buyer is the franchisees who are already trading, and it is remarkable how few buyers use it properly. Ask the franchisor for a list, including people who have left the network, and speak to several you chose yourself rather than the ones you were introduced to.

The useful questions are specific. How long did it take to break even? What did the first year actually turn over against the projection you were given? Which costs were bigger than expected? What does the franchisor genuinely do for the fee? Would you buy it again? Put the answers in the plan. A lender reading “three trading franchisees reached break-even in months nine, eleven and fourteen, against a franchisor projection of eight” knows you have done the work.

Model the fees as they really fall

Management service fees and marketing levies are charged on turnover, which gives them a different shape from every other cost in the plan. In a slow opening month, rent and wages are painful but fixed. The fees are smaller in pounds, but they are taken before you have made any profit at all.

Build them into cost of sales rather than overheads, so that the gross margin you show is the margin after the franchisor has been paid. Then look at break-even on that basis. It is the honest figure, and it is the one a franchise lender will calculate whether or not you do.

Plan the exit before the entry

A franchise is a fixed-term licence, not a business you own outright. The agreement will set a term, often five or ten years, with conditions on renewal, a fee to renew, and rules about selling the unit, including the franchisor’s approval of any buyer and often a transfer fee. Those clauses decide what your business is worth at the end, which makes them part of the business plan rather than small print.

Where SquarePlan fits

SquarePlan asks for your turnover, costs, fees, staffing and start-up spend, and builds the monthly cash flow, profit and loss and break-even from them, along with the VAT and payroll calculations underneath. Enter the franchisor’s projection first, then change the assumptions to your own and see what happens to break-even. That comparison is the heart of a franchise plan, and it is much better done before you sign the agreement than after.

How this gets funded

Franchises are often easier to fund than an equivalent independent start-up, because the lender can see how other units of the same brand have traded. That advantage only helps if your plan uses it.

Bank franchise lending: Most major UK banks have specialist franchise teams. For established brands with a good record, they will often lend a higher proportion of the total than for an independent start-up, but still expect a personal contribution and a plan built for your site.
Start Up Loan: Government-backed personal loans of up to £25,000 per person at a fixed rate, with free mentoring. Often used to fund the personal contribution alongside a bank loan, and needs a full business plan and cash flow forecast.
Franchisor finance: Some franchisors offer deferred fees or introduce you to finance partners. Model the full cost, and be cautious of any arrangement that makes the franchisor your creditor as well as your supplier.
Asset finance: Vehicles and equipment can often be leased or bought on hire purchase, which preserves working capital for the months when trade is still building.

Frequently asked questions

Do I need a business plan if the franchisor gives me one?: Yes. The franchisor's projections are an average across the network. A lender wants a plan for your unit, with your rent, your staffing and your territory, and the process of adjusting their figures is also the best due diligence you can do before signing.
How much does it cost to buy a franchise in the UK?: Anything from a few thousand pounds for a home-based service franchise to several hundred thousand for a food or retail outlet. The initial fee is often the smaller part; fit-out, equipment and working capital make up most of the total.
What is a typical franchise royalty in the UK?: Management service fees commonly run at around 5% to 10% of turnover, with a separate marketing levy of around 1% to 4%. Both are usually charged on sales, not profit, so they need to be modelled as part of the cost of every sale.
Will a bank lend more for a franchise?: Often, for an established brand with a proven record, because the lender can see how comparable units have performed. You will still need a personal contribution, and a plan that shows you have tested the franchisor's numbers rather than copied them.
Is franchising regulated in the UK?: Not by franchise-specific law. The relationship is governed by the franchise agreement. The British Franchise Association runs an accreditation scheme and ethical code for its members, but it is a trade body rather than a regulator, so have the agreement reviewed by a specialist solicitor.

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Clive Unitt FCA

Founder & Chartered Accountant (FCA)

Clive is a Fellow of the Institute of Chartered Accountants in England and Wales and the founder of SquarePlan. He has spent over thirty years working with businesses from sole traders to multinational public companies.

He writes here about business planning, financial projections and the UK tax and funding questions that come with starting out.

More about Clive → ICAEW member record Companies House LinkedIn

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