Choosing the right franchise

Now that you’ve determined that franchising is right for you, it’s time to look at what sort of franchises are out there.

What franchisors want

A common issue when trying to find the perfect franchise is to limit your choices to the industry background that you’ve come from.

If you’ve worked 25 years in business consultancy and want to use your skills as your own boss, then there are plenty of options for you. However, if you’re looking for a career move, or to try something different then franchising provides a lot of other options to you too.

The good news is that a majority of franchises don’t require you to have any experience in their industry. They are usually looking for the following:

  • Passion for their franchise
  • Relationship building skills
  • Communication skills
  • General understanding of business

Choosing an industry

From fast food and coffee through to consultancy and automotive, there is likely to be something that sparks your interest in franchising.

When deciding upon an industry, you should consider:

  • Budget – Franchises range from £500 to £1 million (click here for more information on financing)
  • Skills – Find an industry where your skill sets will enhance the chances of you succeeding
  • Passion – Choose an industry that genuinely interests you
  • Market – Look at which franchise industries are growing and which ones are not
  • Lifestyle – Will it give you what you want?

Choosing a franchise

Once you’ve narrowed the options down to a handful, you can start to look at specific franchises.

Click on the following three boxes for questions to consider whilst researching franchises:

1. How long has the business been franchising?

2. Does the franchise have a competitive advantage or any unique selling points?

3. Is the wider market developing?

4. What are the development plans? Consider how this may impact you.

5. Who are the main competitors?

6. Is the business seasonal? When is the best time of the year to start trading?

7. Is the business a member of the British Franchise Association (BFA), or other accreditation body? If not, why?

8. Does the franchise allocate exclusive territories? Consider the size, potential, restrictions and suitability of any proposed territory.

9. How many franchisees have failed? What lessons were learned?

10. Did the franchisor carry out any pilot operations? If it’s a new franchise ask them to demonstrate its success.

1. How much does the franchise cost in total? What is included in the package and how much working capital will be required? Is there any additional expenditure?

2. What are the ongoing charges? Management service fee, mark-up on goods or services, advertising levy, and any other costs.

3. What are the key financial ratios? Gross profit margin, typical overheads, projected net profit, stock turnover, debtor days and break-even figure. Are they realistic?

4. What is the financial strength of the franchise? Ask for the last three years’ financial accounts and look at what capital has been invested.

5. What professional support have they had in developing the franchise? Have BFA affiliated consultants and solicitors been used?

6. Are you obliged to buy goods from nominated suppliers? Are there minimum order levels?

7. How is the head office organised? Look at management, accounting, sales support and administration. Is this a well-organised and significant business?

8. Are there available trading figures from existing franchisees? Think about your own projections and whether they are realistic and achievable.

9. Are there any financial arrangements you should know about? Vehicle and equipment leasing, supplier terms, national accounts, requirements to replace equipment or refurbish premises.

10. How long is the initial franchise licence granted for? Is it renewable? Is there a fee payable on renewal? What happens at the end of the term?

1. How do they choose their franchisees? What skills and attributes are they looking for and how selective are they?

2. Is there a minimum performance requirement? Consider the consequences of not achieving the required levels and whether they are realistic.

3. What training is provided? Who pays for it? Is it classroom or field-based training?

4. What support do they provide prior to the business launch? Does the franchisor assist with site selection, lease negotiation, design, refurbishment, equipment, vehicles, staff recruitment and stock? What level of business launch support is provided?

5. What ongoing support is provided? Who will deliver the support? Are there regular review meetings and field visits?

6. What support is available if you run into difficulties?

7. Has the franchisor had experience of successfully supporting other franchisees with problems?

8. How often does the network get together? Are there regular meetings and conferences where franchisees can share best practices?

9. Are there any restrictions when I sell the business? What penalties are there if the agreement is terminated early?

10. What marketing programme do you have? What are the franchisors’ and franchisees’ obligations?

Contacting the franchise

Once you have decided on the franchise that you like you can make contact.

The franchisor should quickly provide information about their package, what it entails and the next steps.

Before committing to apply to a franchise you should speak to as many existing franchisees as possible. The franchisor should provide a list of franchisees for you, if they don’t, they may be trying to hide something.

If you’re happy with the franchise and they think you’re suitable for them, a formal application begins.

To learn more about the legal side of franchising, as well as how to finance it all, continue reading ‘financing your dream’.

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