Is franchising right for you?
Why Franchise? The principal benefit to franchising is the opportunity to run a business, which has already demonstrated its capacity to successfully deliver products or services profitably to an identified market. Franchising can be particularly advantageous where it’s your first time running a business. An existing franchise will have built up a strong brand that is instantly recognisable as a quality product or service and you will receive support and back up from the franchisor. Choosing a Franchise 1. Define your investment Before you investigate franchising, you must establish the level of investment you can comfortably afford to make. One of the biggest reasons for business failure is not having the correct levels of funding. Look for strong financial statements and a franchise that has been in business for 3 years or more. What is the history of the company? Has the franchisor any closed or bought back franchises? How long does it take to get set up and how soon can you expect to receive a return on your investment? 2. Does it suit you? Far too many people forget to judge their own suitability for a franchise opportunity, yet this mistake can lead to years of unhappiness for you and your family. You must consider whether a franchise suits you, your needs, your wants and your family. 3. Market/Brand Awareness How strong is the brand and what value is attributable to the established brand name. You will need to carry out research to identify where the markets are, who your competitors are and if there is room for further growth. What are the franchise strengths and how will you reach your market? 4. Seek professional advice Obtain advice from solicitors, accountants and bankers who specialise in dealing with franchising. 5. Evaluate the information It often helps to seek outside assistance at this stage from someone who has not become emotionally involved in the research up to this point. Examine the agreement in detail – franchise agreements tend to be biased in favour of the franchisor. It is important that you fully understand the terms of the agreement, as well as the termination clauses and minimum obligation clauses. 6. Make your decision If you have completed steps one to five, making your decision to join a franchise should be easy. However, if you don't feel 100% sure, simply start the process again.
Support from Franchisor The franchisor will charge you an initial capital investment plus an annual royalty fee either based on a % of turnover or a fixed monthly fee, so you want to ensure you get value for money for your investment. Services usually fall into two categories – pre and post opening services. Pre- Opening Services It is important to tap into the franchisors expertise at this stage to ensure your business has solid foundations. Agree the services being offered by the franchisor before signing your franchising contract. You should expect support in the following areas: Marketing and site selection – any special requirements for the business premises/ what locations would work best/ how much space you will need/ what facilities are needed – shop front, parking etc. Find out where other franchisees will be located in the future and personally visit as many operating units as possible. Assistance with recruitment – numbers of staff and the level of experience and qualifications required. The franchisor will provide a confidential operations training manual and deliver training to franchisees. Stock levels – quantities needed, lead time on orders, discounts available Merchandising – if it is a requirement that each unit is laid out in the same manner. Provide maintenance and support – ascertain level and for how long support is offered. Opening schedule and opening assistance – ask if the franchisor will be there on the opening day to ensure everything runs smoothly. Negotiate new business on behalf of franchisees – this may depend on the type of business. Post Opening Once you are up and running you will continue to receive support from the franchisor particularly in the following areas: Operating/ administration assistance Pricing/ purchasing Periodic inspection/ quality control visits Additional training Sales support Marketing support Storage, delivery and distribution Merchandising
Some franchisors hold regular meetings where all franchisees can meet to share ideas and discuss how they can further develop and grow the business. Financial Projections You will need to prepare a business plan for the first 2 to 3 years, together with a projected profit and loss account and a projected cash flow statement. This will help to identify your funding requirements and the level of sales required to make the business profitable.
The franchisor will expect payment of the initial capital investment up front and you will need to have the funds available to pay this together with the initial running expenses of the business for the first few months while you are developing the business.