I am interested in taking on a franchise. What should I be considering before I sign on the dotted line?
Firstly, ask yourself the question “Do I fit this business model?” For example, if you are looking to invest in a restaurant, are you able to work nights and weekends? If you are investing in a cleaning business, it will be difficult if you have an adverse reaction to certain chemicals. It sounds logical, but be sure of the chosen field. Those franchises that succeed tend to be those with close family and friends around them who are willing to provide help and support.
Secondly, market research is vital, take time to look at the different types of business models available to you, because there are so many out there. Keep an open mind about what industry sector you are interested in rather than simply choosing a business sector that you understand or have experience in. Be aware that when you sign up to any franchise you are buying someone else’s brand and they will want you to adhere to their systems and methodologies. It may be that a completely new area suits you much better as a new challenge.
Make sure that you thoroughly investigate any franchise opportunity that you are seriously considering. Look further into the franchise and get as much information as possible. The franchisor should be transparent about success, where in the country it has performed well and also where it hasn’t. Ask to speak to a number of other franchisees not just the one the franchisor recommends, they should be open and honest enough to allow you to speak to any one of their franchisees to ensure you get the information you need to make an informed decision. If the franchisor is a bfa member, you will already have a certain level of assurance that the business is independently measured against an ethical code of franchising practice.
Make sure that the franchise investment includes the cost of operating capital and stock, or at least if it doesn’t, that you are aware of it. The last thing you need is surprise bills and other charges cropping up. This is really about doing your own due diligence.
Although franchises are proven to be more successful than other business types, it is by no means a guarantee. It takes a considerable amount of hard work and determination, but preparation is key and if you spend the time initially gathering as much information as you can, you will eliminate the possibility of making the wrong investment.
Can I get help to fund a franchise?
Do your sums and find out realistically what funding you have available or potentially available. If you are looking to raise finance it is worth noting that there are three major banks that the bfa accredits because they understand and specialise in franchising. Ask to speak to a specialist franchise department or advisor. By speaking to a bank that is familiar with lending on franchise investments, you are more likely to secure the funding you need.
However, before thinking about approaching a bank, you need to build a comprehensive business plan to allow the bank to judge the viability of the business. Many well established franchisors may be able to help considerably with this, providing advice on many aspects of the business and possibly providing a template to get started. You need to be able to realistically demonstrate the potential market, which you believe is there and project the finance that you aim to generate. It is invaluable if you are able to enlist the help and advice of professionals, including consultant, accountants or solicitors. Planning properly could mean the difference between a successful long running business and no business at all.
Once you are in a position to approach a bank you need to make sure that you approach the right part of the bank. Most high street banks have a dedicated franchise team ensuring that you are given the right advice and direction when raising the finance you need. It is important to know from the start how much you need and not try and save cost by under borrowing. This will only mean you need to go back to the bank when you run out of funds. You also need to include the money you need to operate before making a profit (working capital), so that you can actually live whilst getting the business started.
You need to be aware that most banks will only lend up to a maximum percentage of the value, so you will need to consider where the rest is coming from. Once at this stage the bank will be able to guide you on your next steps, taking into account your repayment schedule, timescales and business services.
If you have any questions about franchises, email our expert, Tom Endean from the British Franchise Association at email@example.com