Ask the Panel - Your Questions Answered

Do you have a burning question about the franchise industry you need answered? Perhaps you have a point of view you haven't seen put forth, and would like to invite the discussion of franchise industry luminaries?

What previous qualifications will I need to become a franchisee?

Paul Hague: Qualifications and past experience will be very specific to the franchise you are looking to acquire. All professional franchisors will have considered this very important factor for success and will present a list of specific requirements they are looking for. They should not be looking to fit a square peg into a round hole. Experience will have taught them what is necessary to own and operate their franchise and it is vital that you fit that profile. You must also be prepared to work as a team member and within a predetermined system of operation.

What documents will I need to sign if I become a franchisee?

Paul Hague: When you are first looking at a franchise you may be asked to sign a confidentiality agreement (non-disclosure undertaking) before detailed information is given to you. You may also be asked to sign an Intent to Proceed agreement (deposit agreement), which will secure the territory you are interested in for a period of time while you make the necessary arrangements prior to signing the franchise agreement, such as seeking appropriate professional advice from your accountant, preparing your business plan, arranging any funding and having the franchise agreement explained to you by a franchise lawyer.

Brian Lewis: The absolute main is the franchise agreement, which will cover the main areas of mutual responsibility of the franchisor and franchisee. This document needs to be advised upon in advance of signing by a recognised franchise expert lawyer.

What regulations do I need to be aware of?

Paul Hague: Your business will need suitable insurance to cover all potential risks to third parties, as well as your employees and business assets, and loss of profits if a serious incident happens. A broker or insurance company will tailor a package to suit.

If you are keeping personal information referred to as 'data' on private customers, whether manually or on a computer, it is likely you will need to be registered under the Data Protection Act 1998. Health and Safety issues will impact on all businesses, and here I would normally advise that an H&S expert is consulted to advise specific requirements.

Mike Simpson: There are many types of regulations. Some, such as those imposed by the Inland Revenue and Customs & Excise, relate to the registration of the business and the submission of accounts, tax returns, VAT returns, and these are common to most businesses, as are also those relating to the employment of staff and associated health and safety issues, but there are some regulations which are specific to the type of business that the franchise is operating. Examples of specific types of regulations include those relating to the sale of alcohol, the health regulations associated with the preparation and sale of food products and those applied by the Financial Services Authority, to businesses dealing in financial products.

Brian Lewis: In our own franchise there are several licences required including a consumer credit licence, performing rights (to play music in the store), and several others. All of these licences are obtained with the help of a senior manager in our company.

How do I search the franchise market?

Brian Lewis: I believe the most important issue is taking plenty of time to research thoroughly all the opportunities that appeal. It is unwise to rush into making a decision - this is to be avoided.

Paul Hague: There are numerous business categories that have been franchised and the best way to research just what is available is to purchase specialist franchise publications and certain national newspapers that now have franchise sections, check out franchise websites, visit franchise exhibitions, and look at the British Franchise Association website.

How do I check a franchise opportunity is sound?

Paul Hague: Simply, do your homework. Ask the franchisor all the questions and challenge any answers that you need further explanation on. Do not take things on face value, talk to existing franchisees in the network and be sure you are not speaking to the ones that say all the right things - in every business relationship there are always areas and issues, if only minor, that stop the absolute perfect relationship!

Seek professional advice - your accountant and franchise lawyer will be able to help you here. Your bank will be able to tap into information at their head office franchise department and decide if they are prepared to lend money against a particular franchise, and the British Franchise Association will be able to offer some information in the form of that franchisor's membership level if indeed they are a member. Research, research and research before you buy, franchising is a serious commitment.

Brian Lewis: Obtain their last three years' trading accounts and a bank reference for the franchisor, then make a personal visit to the head office to ensure everything is looking satisfactory and that you have a good feeling about the main board directors. It is essential to make contact with a number of existing franchisees to ensure that the welfare and prospects of the business are satisfactory.

Mike Simpson: All the major banks have excellent franchise departments and if you are borrowing money to finance the purchase then they should give you an 'indication' as to whether they think it is a good proposition or not. Speak to as many franchisees as possible, ask for a list of all franchisees not just those selected for you. Look carefully at any projections provided by the franchisor and ask existing franchisees whether they have they achieved their forecast and if not in which areas have they fallen short.

What financial help is available for investing in a franchise?

Brian Lewis: The main clearing banks have an appetite for franchise lending and in certain circumstances the government may be able to offer the support of the small firms loan guarantee scheme.

Paul Hague: Most of the main clearing banks have specialist franchise departments as they are keen to lend against sound franchises. The level of lending will vary depending on the experience and success of the specific franchise, but usually starts around 50 per cent of not just the Franchise Package Fee, but the total investment requirement including working capital. Obviously this will also depend on your personal financial standing.

If equipment, machinery or vehicles are involved, banks or finance houses may be willing to provide separate finance in the shape of hire purchase or leasing, but all this must be taken into consideration as to whether a new business can comfortably afford the repayments. And of course there are always family members who may be willing to help!

Mike Simpson: Generally speaking there are no special facilities for franchisees, however the franchisor may have arranged finance at advantageous terms either with a bank to finance the purchase or with a finance company to finance equipment. Banks are keen to lend to franchises as they have a far higher success rate than other small business startups. Franchises with a good track record will often be given favourable terms as they are viewed as a good business proposition.

Franchisees who are not able to provide security to the bank may qualify for the government small business guarantee loan scheme. In some areas government or local grants may be available.