How to become a franchisee: Steps, questions and tips
Becoming a franchisee requires careful planning. Learn the key questions to ask before you invest.
Written by Lena Hanna—Trusted CPA Guidance on Accounting and Tax. Read Lena's full bio
Published Tuesday 4 November 2025
Table of contents
Key takeaways
• Conduct thorough due diligence by interviewing multiple existing franchisees independently, not just franchisor referrals, to gain unfiltered insights into day-to-day operations and first-year challenges.
• Secure comprehensive financial planning that accounts for initial franchise fees, setup costs, working capital, and ongoing royalty payments before committing to any franchise agreement.
• Engage franchise-experienced legal and accounting professionals to review agreements and financial structures, as they understand industry-specific risks and standards that general advisors might miss.
• Evaluate franchisor support quality by requesting specific data on franchisee profitability, proven business systems, and key performance indicators rather than accepting vague promises or projections.
How to become a franchisee: the complete process
Becoming a franchisee is an exciting way to run your own business with the support of an established brand. But where do you start? You can break the journey down into clear, manageable steps from initial research to opening day.
- Assess if franchising is right for you
- Choose a business sector and franchisor
- Understand the financials and secure funding
- Complete your due diligence
- Review the legal agreement
- Prepare to launch your business
Franchise reality check
Franchise ownership comes with both advantages and significant risks that you need to understand upfront.
Key franchise risks include:
- High startup costs: Initial franchise fees plus equipment and setup expenses
- Ongoing obligations: Monthly royalty fees and marketing contributions
- Limited autonomy: Strict operational guidelines you must follow
- Staff requirements: Most franchises need employees from day one
- Performance pressure: Meeting sales targets in competitive markets
Quality varies dramatically between franchisors. The best provide comprehensive training, proven systems, and ongoing support. Others offer little more than a brand name and basic setup guidance.
Questions for you
Self-assessment is your first step to franchise success. Before investing time and money in research, ensure franchising aligns with your goals, skills, and financial situation.
Ask yourself these critical questions:
- Support requirements: Do you prefer detailed guidance or independent problem-solving? Some franchises provide comprehensive manuals, while others expect self-sufficiency.
- Risk tolerance: Can you handle taking on debt for initial investment and staff costs? Franchise ownership requires a larger financial commitment than running a business on your own.
- Franchisor compatibility: Research their reputation, legal history, and communication style. Your franchisor's support quality directly impacts your success.
- Operational preferences: Determine whether you want creative freedom or structured systems. Franchisors vary from highly prescriptive to flexible in their requirements.
- Financial capacity: Plan for the early months by ensuring you have enough funds to cover setup costs, ongoing fees, and the time it takes to grow your revenue. Ensure you have sufficient cash reserves or financing.
Choosing your franchise sector
Choose a franchise that matches your interests and skills. Consider:
- what you enjoy doing
- industries where you have experience or a genuine interest
- sectors with strong market demand in your area
- your skills in sales, management, or technical areas
- your available investment level
Financial requirements and securing funding
Understanding the full financial picture is critical before you commit. Franchises involve more than just the initial fee. You'll need to account for:
- Initial franchise fee: A one-off payment to the franchisor for the right to use their brand and systems.
- Setup costs: This includes fitting out your premises, buying equipment, and initial stock.
- Working capital: The money you need to cover day-to-day expenses like rent, wages, and marketing before your business becomes profitable.
- Ongoing fees: Most franchisors charge a regular royalty fee, often a percentage of your sales, plus a marketing levy.
Unless you have the funds ready, you’ll likely need to secure financing. Common options include:
- commercial bank loans
- government-backed startup loan schemes
- financing from the franchisor
- support from personal networks, such as friends and family
Questions for the franchisor
Franchisor evaluation is critical due diligence that protects your investment. Reputable franchisors welcome thorough questioning because they want successful franchisees.
Focus your investigation on these key areas:
How's the business doing?
Start by getting a summary of the business, including a report on sales, revenue, and growth. You'll also want to see forecasts and goals, but remember there are no guarantees those numbers will be realistic. Check the senior management team’s experience and reputation.
What's the outlook for new franchisees?
Franchisee profitability should be your primary concern. Ask for specific financial performance data, typical operating budgets, and revenue prediction models for new locations.
Data quality varies between franchisors. Vague answers don't necessarily indicate problems, but they do increase your investment risk and require higher risk tolerance.
How strong is your data?
A franchisor may show you market research and financial projections but don't accept it at face value. Make sure the data is reliable by asking:
- when the research was done
- how many customers (or stores) were involved in the study
- what the assumptions were
If you’re unsure about the data, ask an accountant to review it.
What are the main teething problems?
Ask them what franchisees struggle with in the early days. A good franchisor will share this information to help you succeed. If they can’t provide specific direction, ask for more details to ensure you have the support you need.
What are the key performance indicators (KPIs)?
The franchisor should share three to five key performance indicators (KPIs) that will help you succeed.
Can I speak to other franchisees?
The franchisor should introduce you to existing franchisees. Ask for franchisees who are in similar locations to yours. You'll want to speak with those people before becoming a franchisee yourself. Ask for more contacts if the first list of franchisees doesn’t match your situation.
Do you provide proven business systems?
See if the business has established processes to guide you through things such as:
- recruitment
- payroll
- marketing
- customer service
- health and safety
It’s even better if you have access to automated systems for accounting, time recording, payroll, inventory management, and customer relationship management. These systems can save you time and money and help you succeed.
How will growth be handled?
Will the franchisor provide good marketing support to help grow the business? And when growth happens, how will the franchisor manage it? You probably don't want another franchisee to move in across the road, so see if you'll get exclusive access to the local market.
Questions for other franchisees
Franchisee interviews provide unfiltered insights into day-to-day operations. Request introductions to multiple franchisees and spend extended time with at least one.
Seek balanced perspectives by finding franchisees independently, not just franchisor referrals. This research often reveals critical information that determines investment success.
How did you get through your first year?
Ask franchisees about their first year. Compare their answers to what the franchisor told you for practical insights.
What are your KPIs?
If they list just 3–5 KPIs, you'll know you're dealing with a savvy, focused business. The franchisee should give you many of the same KPIs as the franchisor.
What are your big challenges?
Ask franchisees about their biggest challenges and how they work with the franchisor, especially regarding support and communication.
Legal structure considerations
How you structure your business legally has important implications for tax, liability, and administration. In the UK, you'll typically choose between operating as a sole trader, a limited company, or a partnership.
- Sole trader: This is the simplest structure to set up, but it means there's no legal distinction between you and the business, so your personal assets could be at risk if the business runs into debt. In the UK, you must register for Self Assessment as a sole trader if you earn more than £1,000 in a tax year.
- Limited company: Setting up a limited company creates a separate legal entity. This protects your personal assets but involves more administrative and reporting requirements, such as needing to identify people with significant control (anyone with more than 25% of shares or voting rights).
- Partnership: If you're going into business with someone else, you can form a partnership. It's important to have a clear partnership agreement in place.
Talk to an accountant or lawyer to choose the best structure for your business.
Location and premises selection
For many franchises, the right location is everything. The franchisor may have a big say in this, or even find the site for you. Key factors to consider include:
- Visibility and footfall: Is the location easy for customers to find and access?
- Local demographics: Does the local population match the franchise's target customer?
- Competition: Are there similar businesses nearby? A little competition can be healthy, but too much can be a problem.
- Accessibility and parking: Can customers and staff get there easily?
- Lease terms: Make sure you understand the costs, length, and conditions of the lease before signing.
Ask the franchisor for data and support to help you choose your territory and premises.
Questions for a lawyer
Legal review protects your investment by ensuring you understand all obligations and rights. The franchise agreement becomes your only protection if disputes arise.
Hire a franchise-experienced lawyer who understands industry standards and can identify problematic clauses that inexperienced legal counsel might miss.
Does this agreement say what I think it does?
Share your understanding of the agreement with your lawyer. Ask if the document matches your expectations and clarify any differences with the franchisor.
What happens if things don't work out?
Consider what will happen if you want to leave the business. Ask about selling your franchise, how debts are handled, and what the franchisor will pay if they buy it back.
Review the agreement carefully before signing to protect your finances and future.
Questions for an accountant
Franchise-experienced accountants understand the unique financial structures, tax implications, and operational challenges of franchise ownership. They provide more relevant advice than general business accountants.
Ideal candidates have existing clients in your franchise network, giving them insider knowledge of specific systems, common financial issues, and performance benchmarks.
Ask them:
- how best to structure your finance
- what key performance indicators to use
- how to track those KPIs
Becoming a franchisee is a big step
Franchise ownership requires genuine passion for the business and brand, not just perceived safety. Expect long hours and significant personal investment to achieve success.
Thorough due diligence should inform a comprehensive business plan that weighs opportunities against risks. Professional legal and accounting advice is essential before signing agreements.
FAQs on becoming a franchisee
If you are thinking about becoming a franchisee, you may have questions. Here are answers to some of the most common questions.
Can anyone become a franchisee?
While you don't always need specific industry experience, franchisors look for candidates with sufficient capital, a good credit history, and strong business acumen. They want to see that you're motivated, have good management skills, and are a good fit for their brand culture.
How much does it cost to start a franchise?
Franchise costs vary by brand, industry, and location. Some start from a few thousand pounds, while others need hundreds of thousands. You’ll need to cover the franchise fee, setup costs, and working capital.
What ongoing fees will I pay as a franchisee?
You’ll pay ongoing fees to the franchisor, such as a royalty fee (a percentage of your revenue) and a marketing fee for advertising. Check that these are clearly detailed in your franchise agreement.
How long does the franchise application process take?
The process usually takes a few months to over a year. It includes applying, interviews, due diligence, securing finance, and legal reviews before you sign the agreement.
What happens if my franchise fails?
Your franchise agreement explains what happens if your business closes. It covers selling the franchise, ending the agreement, and handling debts. Ask a lawyer to review these terms so you know your obligations and risks.
Disclaimer
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.
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