Your route to business success
Have you thought about making a career change but are nervous about taking the next step? Is running your own business attractive to you but you don’t know what to do?
Every year, Lloyds TSB Commercial helps around 100,000 people set up in business for themselves. As with any major decision in life, careful consideration and thorough research is essential. Starting your own business can be a daunting process, but it doesn’t need to be if you adopt a systematic approach.
Franchising is a way of going into business for yourself but not by yourself. Following a tried, tested and proven business model is becoming an increasingly popular way to enter into business. In addition, franchise owners receive initial training and ongoing support. Experts generally consider franchising as a less risky way of starting your own business.
Why consider franchising?
There is a wide range of franchise opportunities available to suit most needs. What is the appeal of franchising as a way of starting a business? Firstly, you are not on your own. There is an established operating system to follow and investors will have the back up of the franchisor with training and support. A well-established brand will mean that your potential customers will require less convincing to buy your product or service. You can also expect to benefit from the greater collective purchasing power and national marketing campaigns that a well-established franchise brings, which would not be affordable for a new small independent business just starting up.
Working within a large network can bring added benefits of sharing best practice and having someone else to talk to who has already experienced the same issues that you are facing.
Are you right for franchising?
Although as a franchise owner you will have the support of the franchisor, you will need to be self-motivated and be prepared to work hard to build a successful business. Investing in a franchise will not guarantee you success.
Working for yourself makes heavy demands on your family and you need their support and understanding as long working hours are usual when setting up a business. Think about how much you will need to draw from the business to support your personal commitments as it may be difficult to draw a wage particularly in the early months of trading.
When committing to a franchise, you sign a contract and agree to follow the system set out in the operations manual. You need to be certain that you can work closely with the franchisor and you are prepared to operate the business in accordance with their terms. There are plenty of opportunities to consider so don’t feel that you should commit to the first franchise that appeals to you.
How much will it cost?
The level of investment in franchise opportunities varies from a few thousand pounds up to several million pounds and you should select an opportunity that fits into your price range and that will not over-stretch you financially. It is always advisable to have a reserve of funds that you can draw upon in case the business takes longer than expected to get established.
Most franchisors will give you access to their franchise owner network once you have shown a commitment to invest. You can get an indication of how franchise owners have performed in the past, but remember this is not a guarantee of your own success. Speak to existing franchise owners and ask them about the support they receive, what problems they have encountered and whether they managed to meet the initial sales and profit projections.
You need to carefully research the financial aspects of the business and seek professional support where necessary. Speak to the Lloyds TSB Franchise Unit to arrange a meeting with a locally based, experienced Franchise Manager to discuss your own individual circumstances and needs. Typically for a well-established franchise, banks will lend up to 70 per cent of the total set up costs including any working capital requirement. For newer, less established franchise systems, the available finance maybe lower.
Financial support is subject to status and an assessment of a business plan. Banks are likely to require security to support any finance agreed, although the Government-backed Enterprise Finance Guarantee scheme maybe available for individuals without adequate security to offer but who have a strong business plan. There are a wide range of financial options available from banks to support you including loans with capital repayment holidays, fixed or variable rates, flexible overdrafts, asset finance, factoring, cards and many more options to suit individual requirements.
What support is available?
Banks that have a specialist franchise team, such as Lloyds TSB, will also offer impartial advice to support your research and planning. A good starting point for finding out more about becoming a franchise owner is to attend one of the Lloyds TSB sponsored free educational seminars. Details are available on the www.franchise-seminars.biz website. The British Franchise Association (bfa) oversees the sector within the UK and its members adhere to a Code of Ethics. The bfa also runs a seminar programme for would be franchise owners.
Top 10 tips
1. Self assessment
Running your own business is a big step and it is not the right option for everyone. Be honest with yourself in assessing whether you have the right attributes to successfully set up in business. Working for yourself can be rewarding, however, it can also be lonely making important decisions which impact on the business without someone on hand to assist you. It can also carry with it a great deal of responsibility to customers, staff and suppliers.
2. Thorough research
Common sense will take you a long way towards deciding whether the franchise you are considering will prove right for you. There are more than 900 franchise systems currently operating in the UK, but where do you start when choosing the right franchise for you? Eliminating unsuitable franchise opportunities is relatively easy as you will have a good idea as to whether you want to work from home, separate business premises or a van. Make sure you are looking for businesses that you have an aptitude for and that are in your price range.
3. Ask the right questions
When considering the right franchise for you, it is important that you ask questions to understand about the franchise brand itself, costs, projections, methods of operation and the available training and support. Lloyds TSB has produced a free guide listing 30 key questions that you should be asking a franchisor to ensure that you make an informed decision about your investment.
4. Speak to existing franchise owners
You will still need to rely on your own judgement before investing in a franchise brand however it is important that you speak to current franchise owners to establish how happy they are with their relationship with the franchisor and what level of support they have received. Take the time to speak to several franchise owners to get their opinions before making your decision.
5. Ensure that you have your family’s support
It is advisable to discuss how working for yourself will impact upon the family before making any commitment. If you do not have their full support it would be unwise to proceed, so involve them throughout the decision making process.
6. Seek professional advice
Before making a commitment to invest in a franchised business, you should seek professional advice. Banks can provide invaluable free support and provide templates for producing a business plan. A bfa-affiliated solicitor should independently check the franchise agreement and explain it to you before signing.
7. Produce a comprehensive business plan
A business plan has a dual purpose. It is a working document to benchmark your performance as well as presenting your case for financial support for your business idea. It is advisable to send a copy of the plan to the lender or investor in advance of the scheduled meeting.
8. Borrow the right amount
Only borrow what you need. The more you borrow, the higher the financial costs will be and you will need to generate more profit to cover this expense. If you raise insufficient capital from the outset it maybe difficult to re-approach the lender subsequently to raise additional funds, especially if the business has not performed to the levels projected in the business plan. It is, therefore, important that you carefully assess the right amount to borrow from the outset.
9. Reserve Fund
It is advisable to keep a reserve of funds available just in case the business takes longer than expected to take off. A contingency fund to fall back on of at least six months expenditure would be prudent.
10. Follow the system
You are investing in a tried, tested and proven to be successful business model so it is important that you follow the system laid down by the franchisor to give yourself the best possible chance of success.
Written by Richard Holden
Richard Holden heads up the Lloyds Banking Group Franchise Unit and is an expert speaker at exhibitions and seminars. He also regularly contributes in the national and trade press. The Lloyds Banking Group has trained Franchise Managers based throughout the UK to offer support to both franchisors and franchise owners.