Q And A
Starting a franchise: ask the expert
I am about to take a bold step into the world of franchising. I am an HR professional and know nothing about business. I intend using my own savings, but think it might be wise to borrow half, even though I have the full amount. Any ideas/advice will be greatly appreciated.
Answer by Tom Endean
The first thing that I always tell people is that your own due diligence is vital. Make sure that you get as much information about the company as possible and ask to speak to existing franchisees to get a real life understanding of what it involves and what you can expect to experience yourself. On this note, it is always better to have a few to choose from to go and see, rather than be given one – you want to hear from the good, the bad and the indifferent to get a real picture. If you do speak to a franchisee that isn’t doing well or not enjoying things, it is not always a bad thing either. The important aspect is to know why.
You also want to make sure that the agreements are as they should be. It’s far from free, but if you are really serious, speak to a franchise solicitor. By this, I mean a solicitor, who has a recognised specialism in franchising. A franchise agreement is anything between 40 to 100 pages. If you can read it in 10 minutes I would ask questions. You can find a list of affiliated solicitors on our website.
You also want to be clear about how they operate their territories and what the restrictions are. It is important to have a clear idea of where your boundaries are. You also need to be clear about what is included in any costs: Training, equipment, marketing, launch support, stationery, stock, operations manuals etc. The list of options goes on, but make sure you have it specified. You also need to be clear about what the ongoing costs are with regards to and fees for marketing and your franchisee fee. It can vary between businesses, so just make sure you’re happy with it all.
One key thing to remember is that revenue or income isn’t the same as profit. If you are guided towards expected revenue, make sure you find out what the expected profit is. Within the bfa we do not like companies guaranteeing profits unless it can be proven, so it’s worth checking.
Also, it’s worth looking at the franchise agreement length. Most will be about five years. Many differ from this, but you need to think about what your plans and expectations are with this. Usually at the end of the agreement you will go through a renewal process, but it’s good to be clear about it all.
Make sure you meet the franchisor at their office and get a good feel for who they are and how they work. It is also good to ask how many franchisees they have and will be recruiting, as you need to gauge, that if you are one of them, can they support you? These are things that can be discussed with them. It’s also worth seeing how picky they are about recruiting you. Remember that a franchise network is as strong as the weakest link. It’s always a good sign if a franchisor is diligent about recruitment – it gives a good indication of quality control.
Lastly, with regards to finance, speak to the franchise departments of Lloyd TSB, HSBC and NatWest. The bfa accredits all three of these, as they provide specialist franchise departments. The people in the departments are very experienced in franchising and can provide more support than just talking to your local branch. They also know most franchise companies so help give you a bit of reassurance if they are positive about the business you are looking to join. All of their contact details can be found here.
These are just a few points that members of the bfa would have to pass, but I hope it helps. If you want to do a bit of extra background reading there is a quite a bit more on our website, but it covers quite a bit – hence not trying to re-write it all: www.thebfa.org (there are also seminar if you think it would be useful).
The main thing is just to ensure that you enter franchising with your eyes wide open and are happy with the commitment. It’s is a fantastic business model, but you do need to make sure you’ve done your homework.