Why Christmas is ideal for making your franchise investment decision
Franchising is often said to be quiet over the Christmas period, at least in terms of recruiting new franchisees. But is that really the case?
Many franchisors report that over the Festive Season enquiries from potential franchisees reduce, with their thoughts turning to matters such as their holiday arrangements rather than a future career or business. Some individuals prefer the security of a full time employed position with the benefits of a Christmas bonus.
However, if that bonus did not arrive, or was not as much as expected, employees might start to look for an alternative career and that could be franchising. Even if the bonus was large enough, if the employee was not happy the bonus money could act as an incentive to become their own boss and possibly become a franchisee. The employee could use the bonus as a contribution to the franchise costs and borrow the remainder. As a result Christmas could be one of the most active periods for franchising. This is because any extra time a prospective franchisee has on their hands could be used to research franchising and to search for their ideal franchisor.
If franchising has already been considered, many prospective franchisees will have already obtained information about a number of franchisors at the recent National Franchise Exhibition, or through enquiries direct with franchisors. However, there will also be franchisees that use this time of the year to surf the net looking at the advice on offer from the independent organisations, such as the British Franchise Association (bfa) or banks like NatWest and then examining the various franchisors websites. One of the most visited sites is the bfa's and therefore having a link by being a bfa member may increase the possibility of recruiting franchisees. Once the New Year is over, the potential franchisee may then consider meeting with their short list of franchisors and can even attend the exhibition at the GMEX in Manchester to see the franchises first hand.
I do not know if this will happen this year, but franchisors in increasing numbers are advising me that a franchisee will first find out about them via their website. I am certain that this is a trend that is set to continue and the annual NatWest/bfa survey due out in February may confirm this fact. It would therefore seem appropriate that franchisors review their websites on the basis of, possibly, higher activity over the festive season.
NatWest lends to franchisees through a network of specialist Franchise Managers, who are based across the UK. They have a detailed understanding of franchising and mix this with the knowledge of the location in which they operate.
When dealing with a potential franchisee the Franchise Manager will want to know not only which franchise you want to purchase, but details about yourself, as it is the individual and not the specific franchise that we assess. This is because your success will be determined by the amount of commitment and enthusiasm you have.
The Bank will lend up to 70 per cent of the total start-up costs for a franchise, although this may be nearer to 50 per cent for a less established concept. In view of the likely amount required, security, such as a second mortgage on your home, may be required. This will be discussed with you during a detailed meeting.
Before the bank is willing to lend, a business plan will be required and should include details about the franchise, the costs, the sector it operates in, their competition, both locally, regionally and nationally, your CV, your assets and liabilities and projected financial information. The Bank's Business Software, including a template business plan will you assist in drawing up your plan. If you are buying an existing franchise business we would like to see the actual financial performance - the last three years would be helpful.
Many franchisors will assist in completing a business plan, however our Franchise Manager will expect you to know and understand the various statements and financial figures it contains. There will undoubtedly be questions about parts of your plan. The financial information, particularly the forecasts, will help you to assess the performance of the franchise in the early months.
SO WHAT SHOULD A POTENTIAL FRANCHISEE LOOK OUT FOR WHEN UNDERTAKING THEIR RESEARCH?
NatWest has put together the top 10 factors to consider when buying a franchise, no matter what time of year it is. They are:
1. STRENGTHS &'WEAKNESSES. Take a critical look at your strengths and weakness - are you sure you have the capacity, temperament and skills to run your own business?
2. FAMILY. Make sure you have the full support of your family - do not under-estimate the additional responsibilities and demands on your time which, will inevitably cause some strain. This time of the year should give you ample time to discuss it.
3. FUNDS. Ensure you have sufficient capital - you will need at least a third of the start-up costs and half for a less established franchise.
4. TESTIMONIALS. Obtain a full list of existing franchisees - don't just speak to those suggested by the franchisor, they may be the only ones that are successful - visit where possible, but at the very least ask them how their business is performing and what support and service is being provided by the franchisor.
5. REPUTATION. Examine how well known the franchise and its service/product are. A good reputation is a head start in business.
6. MARKET RESEARCH. Look at the market as a whole - find out who your competitors are and how strong their position is.
7. INVESTMENT. Examine costs closely, in particular the franchise fee and monthly management fee, and whether they are reasonable and value for money.
8. PROFITABILITY. Will the margins be sufficient to support the business after payment of regular fees to the franchisor?
9. TRAINING. Is the training provided by the franchisor sufficient to enable you to run the business successfully?
10. EXPERT'ADVICE. Seek professional advice from an accountant about income and profit projections and from a solicitor about the legal agreement. Both should have a good understanding of franchising and preferably be affiliated to the British Franchise Association.
Reported by Mark Scott