Doing the business

Nowadays, franchising presents a variety of possibilities across an eclectic mix of industries, with some 1,000 brands using the model in the UK, so there really is something for everyone and every budget.

If you are thinking about buying a franchise, you should make yourself aware of exactly what is involved and how to identify those businesses which best suit your needs. Here are some of the key areas to consider and questions to ask yourself:

Membership of the British Franchise Association (BFA): the BFA accredits franchisors using a stringent set of criteria based on operational procedures, franchisor/franchisee practices and the European Code of Ethics for Franchising. All members are listed on the BFA’s website to allow potential franchisees to determine which ethical franchisors have passed these checks – not all do.

Financial commitment: levels of investment range greatly from smaller amounts, that you may already have available, to larger amounts that you may need a bank loan for. Assess and understand, from the beginning of your process, what you can afford to invest and how much you are prepared to borrow – and remember to consider working capital requirements while your business is establishing itself and may not be turning a profit. There are three major banking groups that the BFA recognise as specialists in franchising: HSBC, Lloyds and RBS/NatWest; make sure that you ask for their franchise departments from the outset.

Lifestyle: you need to be happy with the commitments needed for your new business in making it a success. Franchising enables you to develop your existing skill set, or become your own boss doing something you are passionate about with full support and training, so think about what you are good at and can take on whole-heartedly. You also need to consider the support and understanding of those around you, friends and family, which some franchisors like to gauge as part of their recruitment process.

Research: your research into a brand and its people is absolutely crucial to finding the right franchise for you, and avoiding the wrong one. Be thorough, and include the following:

Speak to existing franchisees: you want an extensive list to choose from, not just a few that the franchisor provides you information for. Speak to both successful and any less successful franchisees to give you a rounded view. If you can, go and visit them at their place of work. In some networks you will be encouraged to spend the day with franchisees as part of the recruitment process.

Understand the business: make sure you understand all the business operations and what is involved on a daily basis.

Training: be sure that the training provided, both initially to get you up and running and on an ongoing basis to help your business grow, is sufficient for you to be able to gain the skills required to operate the business successfully.

Ongoing fees: ethical franchisors charge an ongoing management service fee (MSF), which will usually be collected either as a percentage of turnover, or through the supply of the raw materials that you need to operate. Make sure you understand the structure and level of fees, and what you get in return; these fees fund the ongoing support that you receive and the future development of the business. Although in some cases MSF could be a set amount per month, there is sometimes a clear advantage to fees based on a percentage of turnover; the franchisor is encouraged to help you succeed – as your success will mean their success.

The people: don’t underestimate the importance of meeting the people involved at head office, finding out who you would be in contact with and what their experience is.

Success rates: ask for success rates of other franchisees. There may be failures, but the important aspect is to understand why.

Recruitment: if the franchisor doesn’t appear selective about who they recruit, walk away. You want to see that they are stringent in their process, not just letting anyone and everyone join the network whose brand you will be trading under. Investing in a franchise should be a two-way recruitment process.

Professional advice: there are a host of professional advisers accredited by the BFA that specialise in franchising who can be invaluable in making sure that you’re taking the right steps – for example, when it comes to reviewing the franchise agreement, make sure you go to a specialist franchise solicitor – it can save you a lot of money in the long run.

Finally, take your time. Make sure you assess and re-assess everything as part of your research before you fall in love with a concept and a dream – you’re parting with your hard‑earned money and making a commitment for several years (usually five at a time), so it’s essential to be certain rather than making an expensive mistake. A good franchisor won’t pressure you into a decision, they understand the level of undertaking required and want serious people to join their network.

FURTHER INFORMATION
www.thebfa.org