Buying a business off the shelf

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Want to run your own business, but can’t come up with an idea? Franchising may be the right option for you.

Janis Anderson became a Caremark franchisee around four and a half years ago because she wanted to change career.

Her background is in venture capital and banking which meant travelling a lot and she wanted to be closer to home and have a job that challenged her. She has a 14-year-old daughter and wanted to spend more time with her. “When my daughter had chicken pox I was in San Francisco for work. I just wanted to be around a bit more, especially for her teenage years. It’s a difficult environment to be a teenager.”

Not only has she got the flexibility she needs, but she has managed to build up a care business of over 140 staff which she feels passionate about. Not only that but she was named Britain’s top franchisee and top female franchisee at last year’s British Franchise Association HSBC Franchisee of the Year Awards.

Janis is one of a growing number of women choosing to become franchisees. Franchisees basically run their own business but based on a tried and tested blueprint created by the franchisor. There are franchises for all types of business, from cleaning to plumbing.

What is a franchisee?

The word franchise basically means an agreement between a person or group of people – the franchisees – to market a product or service provided by the franchisor. Franchisees get the freedom to be their own boss and work in the way that suits them best, but the protection of working within a certain framework as well as low start-up costs. It also means many aspects of the business will be set by the franchisor. Another benefit of being a franchisee is that they don’t have to come up with their own business idea, but they do have to have the skills to run a business, write a business plan and promote their business.

The franchisee has to pay the franchisor certain fees and royalties – these vary according to the franchise. The franchisor must provide some support for the franchisee as well as the framework in which to market their product or service. The idea is that, due to the dual nature of the agreement, both parties have a vested interest in the franchise being a success.

There are two main types of franchise methods: “business format franchising” and “product and trade name franchising”. The former provides franchisees with trademarks and logos and a complete framework for carrying out the work as well as ongoing advice and support. The franchisee, who must maintain the standards of the franchise, pays an upfront fee plus continuing royalties so that the franchisor can develop the business. Product and trade name franchising is mainly associated with industries like cars, petrol and soft drink and does not include royalty fees. The franchisor provides the product as well as logos and national advertising and helps the franchisee to secure business and locations. The franchisee sells the franchisor’s products or services.

Do your research

If you are considering becoming a franchisee, the British Franchise Association says: “You first need to find out whether franchising is right for you before you start looking at the individual businesses. You will then need to look at the businesses that franchise and see which franchise opportunity is suitable for you (if any).  What is absolutely essential is making sure that you have the right information, advice and guidance. When franchising goes wrong it is often the result of both the franchisor and franchisee not having taken the right steps to make sure that the match was suitable. Don’t rush through your research. Take your time and you could find yourself as a business owner with a new dream lifestyle.”

The following points are important to consider:

1. Are you the entrepreneurial type? Do you work well on your own and are you self motivated? Be honest about your skills.

2. Although franchisees work alone, they are also part of a wider team to which they have to report back regularly as well as pay regular fees. Are you a team player or would you prefer a more traditional approach to self employment?

3. Consider carefully what type of franchise appeals, what kind of franchise your skills suit you to and research your market thoroughly. Can you make it work in your location? What is the financial outlay? Franchises can vary enormously in terms of what they require you to pay – not just the initial outlay, but ongoing charges. Include not just the sums mentioned but some sort of contingency budget in case things do not go as smoothly as you hope.

4. Being a franchisee means you will get initial support, but you need to be able to work out a business plan which clearly outlines your targets, your budget and how you will develop your business long term, including issues such as taking on and managing staff.

5. Many franchises can be run from home and the same pros and cons apply to this as to other businesses. The cons include feeling isolated and finding it difficult to differentiate between home and office. There are ways around these, for example, by arranging lots of face to face meetings or by having a separate home and office phone line or a separate space reserved for work. Ensure your office space is comfortable and meets health and safety standards.

6. Check that your mortgage lender or landlord allows you to use your home as a business and whether your local authority will charge you business rates. Check that your buildings and contents insurance is covered if you operate a business from home.

7. Before you sign any contract to become a franchisee, you need to check the small print. Issues to look out for include: any restrictions on how you operate [the franchise may, for instance, seek to limit what you can do to protect its own intellectual property or place limitations on the area you can expand to], ongoing financial commitment [most franchises have an annual cost which may need negotiating in the early years], a get out clause if things go wrong [check if there are any financial penalties for opting out before the end of the minimum time period] and any help and support offered outside the initial welcome period.

8. As a franchisee, you can choose to operate your business in whatever business format suits you, from sole trader [best for smaller franchises] to a limited company. You need to investigate what is best for you.

*To find out about franchise opportunities, visit Franchise directory. More information: The British Franchise Association

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