How to build a profitable franchise business

Entrepreneur, investor and exit strategy expert, Troy Tappenden, reveals his top five tips for franchise success

Investing in any new business can be daunting. And while a franchise provides a far safer route to self-employment, it isn’t without its pitfalls. Here are my five tips to help budding investors assess their franchising options.

1. Accreditation

Potential franchisees can certainly feel more confident of success when buying an established franchise, especially when that franchise has been thoroughly vetted by the British Franchise Association.

Having the bfa stamp of approval means the franchise functions ethically and is usually very stable. It will have met a whole host of criteria – the business must be sustainable, profitable and transferable – and will have a franchise agreement that adheres to the organisation’s strict code of ethics.

It takes a long time to go through this process and there are plenty of franchisors that don’t meet the bfa’s criteria.

2. Suitability

Anyone looking at a franchise should consider whether they can see themselves doing the job on a daily basis.

For example, it’s no good buying a van-based business if you don’t like driving. For most franchise systems, you will be dealing with customers, suppliers or managing staff, thus, you’ll need to be good with people and well organised.

Running a business is very much a lifestyle choice – it really will take over your life. So it helps if you can find something you enjoy and can get passionate about. It’s also important you have the backing of your family, at the very least they will be supporting you emotionally. It won’t be a great experience every day and you’ll need to be resilient and determined. But if you genuinely like what you do, you’ll be successful and the financial rewards will follow.

3. Support

Once you’ve narrowed down your selection, take a good look at the support behind the scenes. After all, that’s one of the main benefits of joining a franchise.

If all you get is an operations manual and some telephone support, you need to question what you are getting in return for your investment. Find out how much support is on offer and what happens when the initial training course is over.

You also need to ask what motivation the franchisor has for you to succeed. If the franchise fee seems high and the opportunity is front-end loaded, where is the incentive to help you grow?

For instance, if a franchisor had a management services fee structure, it means it would only get paid when its franchisees made a sale. Put simply, if franchisees didn’t sell, the brand would not exist. That doesn’t mean franchises with a flat fee aren’t ethical, but when they’re set up that way there is less of an incentive to help franchisees grow their business and generate more revenue.

4. Funding

Buying a franchise from an established brand can help with funding too. The banks are happy to lend to proven franchises and bfa members are more proven than any other franchise. Despite what the press might have us believe, the high street banks are happy to support legitimate franchises and there are various forms of lending available to satisfy all requirements.

The banks trust franchisors to vet potential franchisees. It’s important that the franchisor brings the right people into the business and won’t recruit just anybody. the general process is; once interested parties have been screened, passed the initial profiling and met with the head office team, they’re usually considered very strong candidates.

After that, if the franchisor is happy, they then meet two or three current franchisees, who will pass feedback to the franchise recruitment team. If after that they are still happy to proceed, prospects are then introduced to banks. And because established franchisors have been through that whole process, the banks know any candidate put forward has been through a heavy vetting process and encouraged to undertake their own due diligence.

5. Returns

Franchises are more likely to provide a solid income and generate faster returns than going it alone. So if you’re looking to replace a salary, you’ll be able to do that quickly with a franchise.

Of course, you need to factor in the initial start-up phase and some franchises include it in the business plan. Even though most franchisees can draw an income quicker than estimated, it is better to err on the side of caution, as there’s no guarantee of sales at that point in the business.

Buying a franchise can provide people with an opportunity to get involved in a sector in which they may have no experience, thanks to the support and brand development from the franchisor.

The author
Troy Tappenden is an entrepreneur, investor and exit strategy expert, who helps franchisors maximise the potential of their business. He is also the former managing director of retail franchise Dream Doors.