Thinking of Starting Your Own Franchise Business? Here's What You Need to Consider

There's something exciting about the idea of starting your own franchise business.

Perhaps you've had an idea you've been thinking about for years, you're ready to leave employment and work for yourself, or maybe you just want more control over your working life and financial future.

Whatever your reasons, starting a franchise business can be incredibly rewarding. However, it’s important to realise there's quite a difference between having a great franchise idea and turning it into a franchise that works financially.

A little planning and the right advice can make all the difference though.

We've helped many franchise business owners navigate the decisions that come with setting up and running a franchise, and one thing we always recommend is that they get the foundations right from the beginning. As you can imagine, it's much easier to make the right decisions at the outset than try to put things right further down the line!

First, what type of franchise business should you set up?

One of your first decisions will be how to structure your franchise.

The options you have include:

• Operating as a sole trader

• Setting up a partnership or limited liability partnership (LLP), or

• Forming a limited company (Ltd)

Becoming a sole trader can be the simplest option when you’re starting out on your own. There's generally less administration however,you’ll want to keep in mind that you’ll be personally responsible for your franchise's debts.

A limited company, on the other hand, is a legal entity that’s separate from you. This generally gives you limited liability protection, although it’s important to understand that directors still have legal responsibilities, and there are circumstances where personal liability can come up.

Partnerships and LLPs offer other options, particularly where two or more people are going into business together.

Truth be told there isn't one structure that's right for everyone. Your choice will affect how you're taxed, how you take money out of the business, your responsibilities, and potentially how easily you can grow.

And while it's possible to change your franchise business structure later, doing so can have financial and tax implications. So, this is one of those conversations worth having with your accountant right out the gate before you start trading.

Getting registered and understanding your tax responsibilities

Once you've decided on your structure, you'll need to make sure everything’s correctly registered.

If you've decided to operate as a sole trader, you'll need to register for Self-Assessment if your gross trading income exceeds £1,000 in a tax year, although there are circumstances where you may need to register for other reasons.

For a limited company, register with Companies House and make sure your Corporation Tax arrangements are in place. Company directors and people with significant control in the franchise are also expected to comply with the identity verification requirements – this was mandated in November 2025.

And then, of course, everyone’s favourite – tax!

As a sole trader, you'll pay Income Tax and National Insurance on your taxable profits. Limited companies pay Corporation Tax on their profits, while directors may also have personal tax liabilities depending on how they receive their income.

For 2026, Corporation Tax rates range from 19% for companies with smaller taxable profits to 25% for those with higher profits, with marginal relief potentially available between the relevant thresholds.

The really important thing to understand is that the money coming into your franchise business isn't necessarily all yours to spend!

If you've previously been employed, you'll be used to tax being deducted before your salary reaches your bank account, so the number you see on the screen is all yours to do with as you wish. Not so when you run your own franchise. We've seen how easy it is for new franchise business owners to look at a healthy bank balance and forget that some of that money will eventually need to go to HMRC!

Putting money aside for tax right from the beginning is a habit well worth developing, and something we recommend to every one of our clients.

What about VAT and Making Tax Digital?

VAT is another consideration, and it's not necessarily something you should wait to think about until your franchise is established.

The compulsory VAT registration threshold is currently £90,000 of taxable turnover, which is measured over a rolling 12-month period. Registration can also be required if you expect to exceed that threshold within the next 30 days alone.

Some franchise businesses choose to register voluntarily, and whether that's beneficial really depends on their circumstances and customers. Your accountant should be able to help you understand the implications before you make that decision, so make sure you ask them.

You'll also need to consider Making Tax Digital (MTD).

MTD for VAT already requires VAT-registered businesses to maintain digital records and submit returns using compatible software, unless they’re exempt. And from April 2026, MTD for Income Tax began applying to qualifying sole traders and landlords with income above £50,000.

That threshold reduces to £30,000 from April 2027 and £20,000 from April 2028.

So, even if you're starting a relatively small franchise business, it's worth thinking about your accounting software from day one. Because choosing something suitable now can save you so much unnecessary work later.

Cash flow: don't confuse sales with money in the bank

This is one of the most important things for any new franchise owner to understand.

You can be making sales, winning customers, and even showing a profit on paper, but still struggle to pay your bills.

Why?

Because profit and cash flow aren't the same thing – read that again!

Potentially you’ll have customers who take 30 or 60 days to pay, while your suppliers, rent, software subscriptions, and other expenses need to be paid much sooner. And in the early months of a franchise business, it's not unusual for more money to be going out than coming in.

That's why cash flow forecasting is so valuable.

It helps you understand when money is likely to arrive, what needs to be paid, and whether you'll have enough available to cover your commitments.

It's also worth considering how you'll support yourself personally while the business gets established. After all, you're not starting a franchise just to pay everyone else!

At The Franchise Accounting Specialists, we help clients look beyond their current bank balance and understand what the coming months might look like. Working with you in this way gives you a much better basis for making decisions, particularly when things don't go quite as planned.

Good systems make running a franchise much easier

When you're starting out, it's tempting to keep everything in your head. You know which invoices need paying, which customers owe you money, and where you've saved your receipts.

And when there's only you, that might seem manageable.

However, as your franchise grows, relying on memory becomes increasingly difficult. So, having good systems in place for bookkeeping, invoicing, expenses, and financial reporting will make your life so much easier.

It also means you'll have access to reliable information at your fingertips when you need to make decisions.

And that's really what good financial management should be about. Your accounts shouldn't only tell you what happened last year – they should help you understand what's happening now and plan for what's coming next.

Will you need employees or contractors?

Another decision is whether you'll run your franchise business yourself, have employees or work with contractors.

Each approach has its advantages, as well as financial and legal responsibilities to think about.

If you employ staff, you'll generally need to register as an employer, operate PAYE where required, consider workplace pension obligations, and arrange appropriate insurance. Additionally, Employers' Liability insurance is compulsory for most businesses employing staff, with a minimum cover requirement of £5 million.

Working with contractors could offer you more flexibility, although don't assume that calling someone self-employed automatically makes them so for tax or employment purposes. And don't forget the cost of taking people on goes beyond their salary or agreed fee.

Again, your accountant should be able to help you understand the financial implications before you make those commitments.

Don't overlook insurance and professional advice

Depending on your franchise, you may need public liability insurance, professional indemnity insurance, product liability cover or protection for your premises and equipment. Certain activities also require licences, permits or other regulatory approvals. It's worth speaking to an insurance broker and, where appropriate, a solicitor to make sure you've considered all the relevant requirements.

And if you're starting a franchise business with someone else, we'd strongly recommend having proper agreements in place from the beginning. While everyone may be excited and in complete agreement today, what happens if your circumstances or ambitions change?

Of course, these conversations might feel unnecessary when everything’s going well but, like anything, they're so much easier to have before there's a disagreement.

Remember why you're starting your franchise business

With all this talk of tax, registrations, software and cash flow, it's easy to lose sight of why you wanted to start your own franchise business in the first place.

Perhaps it's financial independence, more flexibility, creating something for your family, or simply doing work you love.

Remember – those ambitions matter.

And your business needs to be built around helping you achieve them. That's why we believe your accountant should be involved in much more than simply completing your tax return. A good accountant needs to understand what you're trying to achieve, help you plan for it, and be someone you can turn to when you're making important decisions.

Because starting a franchise is one thing – building a franchise that supports the life you want is quite another.

Thinking of taking the next step?

If you're considering starting your own franchise business, and you'd like to talk through your plans, please get in touch. We'll be happy to help you work through the financial and practical considerations, choose the right structure, and get your franchise off to a great start. The more thought you give to the foundations now, the more time you'll have to concentrate on building the franchise business you really want.