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So you want to own a franchise?

Mark Scott, Director of Franchise Development at NatWest, explains why banks back franchising

Starting up a business by way of a franchise is becoming more and more popular. People from all sorts of backgrounds are attracted to this route and their circumstances can vary tremendously, as well as their motivation, for doing so. However, what is the attitude of the banks towards this type of enterprise?

Start-ups and franchising

The UK sees the creation of thousands of new business start-ups every year and this represents a very important opportunity for the banks. As well as many new start-ups each year, there will also be a high number of young businesses that, for a variety of reasons, will cease to trade. The advantages associated with franchises can help to mitigate against some of the threats that a new business will face during its early yet critical trading period, as well as providing a framework for the medium and long term.

So what are the advantages that a bank will see?

For decades now banks have seen that an established and ethically run franchise can deliver certain advantages, including:

  • Potential franchise owners are screened and in some cases have to undergo very detailed training before finally being accepted.
  • The support at the pre start-up and start-up stage carries throughout the term of the Franchise Agreement, albeit the type of support will change as the franchise matures.
  • It is a proven business model, this means other people with no or limited experience at starting up and running a business will have succeeded. There will be people who will not succeed for various reasons but, in comparison with other types of start-ups, the level of closures will be much lower.
  • The bank will understand the costs involved in starting up and the business plan can also be compared to its experience of existing franchise owners.
  • The combined marketing power of a franchised business will help to raise the profile of the brand and service to a level that an independent small business would struggle to achieve.
  • The systems that the franchise owner adopts will include controls and reporting, so the bank will be able to get hold of timely and accurate information on how the franchise is performing.
  • Product and service development is carried out, usually independently of the franchise owners, so that they can focus on their business in the knowledge that the future direction of the business is being catered to.
  • Franchise owners themselves will have carried out a good level of research and due diligence in order to establish whether the franchise is the right one for them.

The benefits to you the franchise owner

These advantages the banks see tend to manifest themselves in the following ways:

  • Banks with a good understanding of franchising will have a dedicated franchise team making the whole process of raising bank finance, if required, and opening an account that much simpler.
  • The amount of finance the bank may provide could be higher than that offered to a non-franchise start-up dependent upon the track record of the franchise and it will be structured appropriately.
  • There may be other related banking products, which are offered on special terms to franchise owners.

Next steps

The most important thing is that you fully research the franchises you are interested in – make sure that they are well run on an ethical basis and also determine whether you can work with the franchisor and that you will enjoy the challenge. Starting up any business – franchised or not – is hard work!