Ask the Panel - Your questions answered

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THE PANEL OF EXPERTS

Franchise Association
Nigel Toplis is the current Chairman of the British Franchise Association, and is also Managing Director of promotional product franchise Recognition Express.

Franchise accountant
Mike Simpson who is joint Managing Director and a founder of Franaccounts, has nearly 35 years of experience in senior accounting roles and nearly 30 years in franchising.


• How do franchisors decide on territories?
James Gillies, Invernesshire

Nigel Toplis: There is no fixed formula for creating a franchise territory. As the franchisor grows his/her business by helping franchisees to grow their businesses, there is no incentive to restrict territories to a minimum size. However, territories should not be excessively large, as the franchisor also wants and needs to grow the actual size of the network. The franchisor will therefore look for a balance - to provide a territory large enough to allow business growth but not so large that the franchisee cannot service the area effectively. Generally this will be based on key demographic information such as population and number of businesses.

Mike Simpson: The franchisor will use various criteria to decide on the size and location of these territories. Each territory should be large enough to provide the franchisee with the potential to achieve to projected sales as shown in their business plan. The size of these territories may be calculated by the number of businesses or number of people in the area. Alternatively, it may be calculated by the number of a particular type of business, property or person. Typically territories are divided by postal codes - either part, whole or several - or some other geographical split such as town, borough or county.


• I wondered if there is any sort of insurance that you can get to protect your business in case the franchisor goes out of business? I am looking at buying a franchise in travel. I will not get paid my commissions until after the customers go on their holiday, this can sometimes be six months after the initial booking was made. If the company I buy my franchise from cease trading how would I get my money? Then, what would happen to my business? Is there any bond or would I have any way of protecting myself? I have asked the person I have been looking at buying a franchise from and they re-assured me that they do not intend on going anywhere, they are financially stable and it is a fantastic opportunity but I feel I would like that bit of extra security. Jennifer Sisson, by email

Nigel Toplis: As far as I am aware there is no specific insurance available to protect yourself from a franchisor going out of business, although today you can buy insurance for just about anything. My advice therefore is to speak with a reputable Independent Financial Advisor, as this is more of a financial matter than a franchising matter. There are however, some steps I would personally take to be assured of a franchisor's suitability:

• Make sure they are a member of the British Franchise Association;
• Speak to existing franchisees;
• Meet with and thoroughly question the franchisor, and request financial statements.

Nothing in life is 100 per cent assured, but by speaking to people in the network especially, at least you will get a 'view' from the coalface.

Mike Simpson: Virtually everything is insurable at a price but I doubt if this is. Basically this is an insurance against somebody going bankrupt or against a trading bad debt. This is the risk of going into business.