How To Research A Franchise

Want to become a successful franchisee? Comprehensive research is critical, Paul Cady, Metro Bank’s franchise manager, says

Navigating the route to becoming a franchisee of an established and proven franchise concept can be long and complex, with many diversions and pitfalls along the way.

The journey can be made easier by applying a few simple rules to the process, taking appropriate advice from relevant professionals and, most importantly, doing your research.

Recent research suggests that the failure rate of franchised businesses is significantly lower than non-franchised business start-ups. It is therefore unsurprising that large numbers of people considering self-employment and starting up their own business opt to investigate franchising.

Channels

But what franchise? There are many channels available when choosing a franchise concept, from the British Franchise Association seminars, to marketing material, to social media, to even visiting the franchisor to establish if it is the right one.

A good starting point is to carry out a risk assessment on yourself - and in conjunction with your friends and family. What are your own personal circumstances? What are your strengths? Your weaknesses?

This exercise should provide you with a guide on whether you should be considering an established franchise concept that has a considerable number of franchisees or a relatively new franchise with only a handful of franchisees. Both present different risks.

Once you’ve identified the franchise concept, it’s vital you visit the franchisor’s premises to see how the business works and talk to those involved in the business operation - it will be these people with whom you are likely to have day-to-day contact. Make sure you establish what support is available to you during those difficult and challenging first few weeks and thereafter.

Prepare a list of questions, such as:

* What initial and ongoing training is available for both myself and my colleagues?

* Is there a pre and post opening programme that includes marketing and sales support?

* Can I have a list of existing franchisees to call? Here you are looking for a comprehensive list, as talking to existing franchisees is priceless.

* What is the investment level and what working capital is required?

* What is the profitability? Beware of generic ‘business plans’. Most franchisors will provide you with a selection of actual numbers from actual franchisees (with the names removed), so that there is a cross section of performance across their business for you to consider.

* Can I have a copy of the franchise agreement? Often you will not be provided with the agreement at the first meeting and may be asked to sign a confidentiality agreement. This is common and not unreasonable. When you do get a copy of the agreement, remember to seek appropriate legal advice from a solicitor who is an affiliate member of the British Franchise Association.

* Can I see your (the franchisor’s) latest audited accounts? Once again, when you are reviewing these statements, don’t forget to seek relevant professional advice, so that the finances of the franchisor can be interpreted in a way that can give you reassurance as to the stability of the business.

Review

There may well be other questions you feel fit your own personal circumstances, but what is important is the preparation before you meet your chosen franchisor, as well as the time you take afterwards to review the answers that were given.

While you are going through the process of identifying the right franchise opportunity, bear in mind that the franchisor is doing something similar in making sure you are the right person for its franchise network.

It will be considering whether you have the right energy and enthusiasm for the business and how suitable you are to represent its brand.

One of the final parts of the process is discussing your change in circumstances and your future plans with your bank manager. It’s crucial you carefully prepare your business plan and seek advice before the plan is placed before the bank for consideration. Most franchisors will provide you with an illustration of what sales can be obtained, as well as the likely costs and margins.

The most important factor here is that you take ownership of the business plan. You must understand the component parts of the plan and present the plan in a professional way, so as to enable your bank manager to give it due consideration.

Ideally, the business plan should contain some of the following and should be sent to the bank manger ahead of any meeting:

* Details of the franchise: the concept, market research and a competitor analysis.

* Your CV: your assets and liabilities, personal outgoings and some copy bank statements.

* Breakdown of the start-up costs: this should include working capital and the amount of your own cash resources you will be injecting into the business and, therefore, requiring to borrow from the bank.

* Financial projections: including a cash flow forecast, balance sheet and profit and loss for a minimum of three years.

Commentary

Remember, a business plan should have some detailed commentary, specifically on why you feel the forecasts are achievable. It should also have contingencies built in to cover issues where business performance might not be as anticipated and therefore will have an impact on the overall working capital requirement and the ability of the business to service any funding under consideration.

A final point to note is that once the funding has been agreed and your business is up and running, it should not be filed away and forgotten about.

You should constantly be reviewing your plan in line with the progress of the business, which should provide you with indicators of how it can be improved.

Buying into a proven business format franchise of a concept that has been piloted in the correct way does not guarantee success. Research remains vital. Take your time, involve others and seek relevant professional advice. In doing so, you will arrive at a conclusion you feel comfortable with.