Professor Roy Seaman CFE Managing Director and Founder of Franchise Development Services
Through time and experience, well-established franchisors draw up a profile of the type of individual or company which is suitable to successfully operate their franchise concept. Many of the attributes identified in this profile are common across franchising irrespective of the industry sector in which the franchise is involved. We can, therefore, identify the main criteria that are now being adopted by genuine and successful Business Format Franchisors.
These traits include a determination to succeed, being goal oriented and possessing a willingness to invest time, ability and financial resources to own and operate the chosen franchise. Ideally, the franchise owner should have a passion for their choice of franchise and add that genuine enthusiasm to the day to day operation of the business. They should respect the franchisor and what they have created and be willing to follow their proven frameworks for success.
On average, we estimate prospective franchise owners take around three months to thoroughly investigate the franchise opportunities available in their chosen sector, check out the franchisors' trading histories and speak to existing franchise owners in their networks. There is also considerable value for prospective franchise owners in talking to professional franchise consultants, banks with franchise departments and, finally, an appropriate franchise lawyer. It is important for a franchise owner candidate to be able to contribute substantial unencumbered liquid capital to the initial total franchise investment.
While banks are willing to offer 50-70 per cent funding, franchisors would be advised to ensure their franchise owners have adequate working capital and avoid an over reliance on borrowing, which can create a strain on cash flow or reduce the effective return on investment.
For example, a potential franchise owner should ensure that the earnings claims of the franchise tie in with their repayments over the term of the franchise and their own monthly outgoings once the business is up and running.
Once the candidate has made the decision to proceed, the franchisor has a big responsibility to provide a proven plan that should deliver a far superior profit than the individual could ever expect to receive by owning and operating a similar business under their own name.
That, in essence, is the value of investing in a franchise.