How to sort the sweet from the sour
Visiting franchise exhibitions, surfing the franchise websites and reading franchise publications are like browsing the shelves of a well-stocked sweet shop, observes Rachel Spaul. Like sweets, there's hundreds to choose from, some offering a unique flavour. But be careful which one you choose because even the most tempting may not provide lasting enjoyment
Looking for a franchise employs many of the skills you already use on a day-to-day basis. You wouldn't for instance hire someone to install your new boiler without checking they're CORGI registered. Likewise, there are particular checks you need to make before investing your hard earned cash in a franchise.
Before you begin looking for a franchise first evaluate yourself and your suitability to franchising.
Franchising has been described as a 'business marriage' between the franchisor with the system for doing business, and the franchisee who operates that system within a defined territory. Therefore, the first question you should ask yourself is: 'Can I work within a system?'
By paying a franchise fee, you buy a format for doing business. Whilst you are your own boss in the sense that the business will succeed or fail by your own efforts, the franchisor will expect you to operate within their framework. To maintain uniformity the franchisor may impose restrictions, such as what products you can sell or services you can offer; what marketing materials you can use; if you own a retail outlet, when you open and close; what supplier(s) you can use; and in which area(s) you can trade.
While this may sound dictatorial, successful franchising hinges on the business owner investing time, effort and capital in following a tried, tested and proven business system. So forget franchising if you are unwilling to learn or follow a system, unable to work as a team player, or content to be a passenger.
Other questions you should be asking yourself are what do you want from your business - an income, to build an asset for the future, independence, a better lifestyle, more time to spend with the family? Will you be able to meet the demands of self-employment, which do involve long hours especially in the early start-up phase? What skills and experiences can you bring to a franchise? Do you have, or can you raise the finance? Will you have the support of your friends and family?
With 718* franchised businesses on offer in a variety of sectors, you should also be asking yourself what sort of business do you want? Do you have a particular interest or hobby? Do you want to run your business from home or an office? Are you interested in retail, sales, or performing a service? How many hours do you want to work? Will you want to operate the business yourself or hire a manager? Will you want to open in more than one territory, or open more than one outlet?
The bottom line is that you should select the type of franchise appropriate to your background, experience, skills, preferences, ambitions and budget.
Just like any investment, buying a franchise carries risks, and there will inevitably be some less than sweet opportunities. A genuine business format franchise must include the purchase of rights to use a comprehensive business package, which is a total system of doing business under a protected brand name in an exclusively protected territory. The package should also include comprehensive initial training and support, through ongoing training and field backup.
Be careful of franchise clichés, generalisations and media hype by getting the franchisor to spell it out for you: what is actually meant by 'intensive', 'ongoing' training and support; what does a 'fully equipped' vehicle include; what is meant by 'exclusive territory', how is the franchise a 'proven system', what does the 'franchise package' include etc.
The word 'finance' sends shivers up many people's spines, but remember it is your business so make sure you understand all the ins and outs of how you will fund your franchise in the short and long term.
Franchise investments range from as low as a few thousand pounds for a home operation, up to £850,000 plus for a restaurant brand - although it's rarely recommended to opt for anything that costs less than £10,000, because this may imply inadequate central funds for training and support. It is your responsibility to research your intended business - including a precise calculation of the total investment cost. Other costs, in addition to the initial fee, may include premises rental and fit-out, initial stock or equipment, hardware/software.
In addition, calculate your working capital requirements to help you cover your personal expenditure until you begin earning a profit - such as any mortgages, rents, utility bills, school fees, property maintenance, insurances, food, etc. Successful franchises often charge a Management Service Fee (MSF), which can be calculated as a percentage of the franchisee's gross sales, paid to the franchisor at regular, pre-determined intervals, or as fixed fees regardless of turnover. Franchisees may also be expected to contribute to a national marketing fund.
The Management Service fee is often key to the franchisor providing the franchisee with comprehensive ongoing support, so beware of the no-royalties and no-franchise fees banners.
Where funding may be a barrier to becoming your own boss, it's not all bad news. Prospective franchisees now enjoy the availability of a wider choice of finance packages to assist them in funding a franchise. All the major high street banks have franchise departments in recognition of the higher success rate of franchises.
Before signing on the dotted line make sure you have thoroughly researched the opportunity: read all the literature such as magazines, newspapers, and franchising guides to understand franchising; attend exhibitions and seminars and make direct comparisons between opportunities; evaluate yourself; verify brochure claims to ensure you know exactly what the package includes; talk to existing franchisees, talk to the experts such as bankers and accountants, franchise consultants and lawyers. Further details call Tony Urwin on: 0161 926 9882