What to look for in a franchisor
Nigel Toplis, Managing Director of Recognition Express, ComputerXplorers and The Zip Yard, explains what to look for in a franchise and how to assess a franchisor.
In order to assess a franchisor, it is first necessary to understand the essence of a franchise. Franchising is neither an industry in its own right nor even a business. It is, however, one of the fastest growing and most consistently successful methods for distributing products and services. It is an eclectic mixture of conformity and individuality that combines the best elements of big business and small operations.
To be successful, a franchise owner must comply with the franchise system and yet such compliance will enable them to achieve a greater level of fulfillment.
In the UK, there is a latent but massive and increasing desire to run our own business, and this goes across culture, race, age and social background.
In franchising, success comes from the successful marriage of franchisor and franchise owner. The phrase ‘in business for yourself, not by yourself’ really does capture the essence of franchising.
If you launch your own business, you are responsible for absolutely everything. With a franchise, the franchisor offers experience, know-how, proven operation methods, marketing tools, sales training, technical guidance, as well as a corporate identity, trademarks and the all-important brand.
When selecting the right franchise there are six steps you should follow:
- Investment level
- The industry
- The franchisor
- Professional advice – legal/financial
- Making the decision
All six steps are important but in this article we are looking specifically at assessing the franchisor. A good franchise should have the following attributes:
A proven business history
Ensure the franchisor has been successfully trading for at least two years.
Ask to see evidence of their trading history and their annual accounts and meet with other franchise owners to get their opinions on the success of the franchisor.
The franchisor should have their business system documented by way of a manual (or manuals). Ask to see these before you sign the Franchise Agreement and be comfortable that the systems are well thought out, professionally presented and easy for you to understand and follow.
The franchisor should provide you with training in all aspects of the business system including – but not limited to – sales, marketing, operations and finance.
Ask to see a copy of the training programme for new franchise owners.
Security of tenure
Make sure that the franchisor does actually own the franchise or at least has the rights to operate the franchise. It is not unusual for a franchisor to run the business under a Master Licence Agreement from another country.
Ongoing support structure
Ongoing support is critical and, while it is true that you are buying into a brand and a business system, even more you are buying into the franchisors intellect, know-how and support. You need to be clear that they have this support structure in place.
The British Franchise Association (bfa) undergoes vigorous checks on franchisors before allowing them to become members. That is not to say that non-members are poor franchisors but bfa membership does give you added ‘peace of mind’.
You can answer a number of questions about a franchisor by doing diligent ‘desk research’.
Check with the bfa, Companies House, franchise publications, and ask the following:
- Are there other franchisors in the industry? If not, why?
- Is your preferred franchisor the largest operator and/or a key player in their sector?
- Are they a newcomer but with a brilliant new slant?
- Does it offer the best package to you?
- How often does a consumer buy the product or service?
- Do the products or services enjoy repeat business?
- What is the typical value of a sale – and the typical profit? How many customers would you need to meet your minimum business projections?
- Does this franchisor seem profitable?
- Does this franchisor offer the best potential for growth?
However, there is nothing better than meeting the franchisor face-to-face and asking about:
- Profitability – ask for two/three years of reports and accounts
- Knowledge – question them on the market and market trends
- Success – how long have then been in business and how successfully?
- Vision – are they a serious player or full of platitudes?
- Support – ask to see detailed support plans; examine the company organisation chart; note improvements made to their systems (or not); are you forced to buy the company product? Do they have the manpower and intellect in each key business area?
Also get a copy of the Franchise Agreement – they won’t change the document to suit you but you need to be aware of its contents.
Once you have met with the franchisor and if you are still happy to proceed, ask to visit or speak with some of the existing franchise owners.
To summarise: look for a franchise where the franchisor has a proven history, good systems, effective training, bfa membership etc; they are a business you think you may be interested in and have some or most of the skills required; the investment required is within your budget; and the industry meets your specification in that it is large, growing and sustainable.
Text provided by Nigel Toplis (pictured right), Managing Director of the franchise brands Recognition Express, ComputerXplorers, and The Zip Yard.