Top tips for would-be franchisees

Words of advice for franchisees from Nicky Morgan, Riverford’s franchise services manager. Matt Pigott interviews

Ask the right questions Two years ago Nicky Morgan took over the franchise services manager role at the organic food delivery franchise Riverford and is today responsible for recruiting new franchisees and supporting established members of the network.

Drawing on her experiences with the organisation - one that’s grown from a single man delivering 20 boxes to 70 franchisees delivering 60,000 - she shares her thoughts about what potential franchisees should consider before buying a franchise.

You communicate with franchisees every day. What advice can you give to people thinking about investing in a franchise opportunity?
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The months and weeks prior to signing the contracts [franchise agreement and sale agreement] are the most important time. This is the critical discovery or due diligence phase of buying a franchise. It’s your business. While any good, ethical franchisor will talk you through their business model, explain their understanding of the marketplace and discuss future growth plans, it’s important to digest that information and continue asking questions until you’re completely satisfied the business you’re about to invest in meets your requirements at both the macro and micro levels.

What if you’re thinking about buying a resale?
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When it comes to a resale, you should expect full transparency and cooperation from both the franchisor and incumbent franchisee, but the all-important research into the finer operational detail is down to you. Therefore, concern yourself with finding out as much about the day-to-day running of the business as you can and look closely at the sales and costs of the business to make sure that it will, or at least can, deliver the lifestyle and remuneration you want.

If you’re buying a virgin territory, you’ll spend a lot of time talking directly with the franchisor and/or their key team members. On top of that, you should also spend time shadowing at least one existing franchisee. The more time you spend talking to franchisees across the network, the better informed your final decision will be. If you’re buying a resale, shadow the departing franchisee as much as you can and ask questions that will help you understand how they run their business. Also, identify areas you may want to streamline.

Buying a business is a life changing decision, one that has money and emotion invested in it. How important is it to keep a level head throughout the transaction process?
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Very. In my experience of meeting potential franchisees, a lot of people have the tendency to let their heart rule their head, at least in the beginning. All perfectly natural, of course, especially if you’re passionate about the business you’re buying and especially when your thoughts are oriented towards the future and the fulfillment of a long-held ambition or dream.

The important thing, however, is to slow down, take a deep breath and focus on the here and now. You need to understand the business from end to end; we’re talking balance sheets, cash flow, yearly profit and loss, logistics, culture, customer services, the products and where they come from. You need to ascertain whether the business is seasonal, what its biorhythms are - its highs and lows. As you go through that process of learning about precisely what you’re buying before you buy it, eventually excitement will give way to rationality, which can only be a good thing.

How important is it to know about the processes of the business you’re buying?
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If you’re investing in a franchise with a new franchisor that’s only been running for a couple of years, you need to look closely at processes, everything from centralised computer systems that deal with things such as accounting and customer management to standardised forms such as health and safety.

You need to ascertain how much the franchisor does on the administrative side and how much you will do. Onus varies from company to company and every franchise will be structured slightly differently. Those differences will impact the day-to-day running of your business at the ground level.

If, on the other hand, the franchise has been established for 10 years, 20 years or more, it’s likely it will have gone through many stages of growth and will have more robust systems and processes in place. It’s also likely there will be more experienced franchisees to talk to who can advise on the efficiency of the company’s integrated systems.

Should a franchisor put you in touch with franchisees?
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A good franchisor should do many things, one of which is to encourage you to shadow a wide range of franchisees within the network - established and new, old school and progressive. It’s the only way you’re going to be able to sense check the business critical areas you feel you need to dig the most deeply into.

A franchisor who is proud of their business, warts and all, is better than one who tries to gloss over operational misgivings, steer you in directions your gut tells you not to go and who seems to cherry-pick the best performing franchisees. If everyone you meet is staggeringly happy about everything in the business, with no negatives to speak of, be suspicious.

If it looks too good to be true, it probably is. You need to know about the challenges and headaches that come as part of the business - you need a balanced view. And if you’re introduced to an unhappy franchisee who complains a lot, but still want to buy the business, you can be pretty confident you’re making the right decision.

With reference to a virgin territory, another important point is that within the cross-section of franchisees you shadow you should make sure at least one of them runs a territory similar, in terms of its demographics and physical geography, to the one you’re planning on buying. An urban franchise will be very different to a rural franchise, for example, and having a well matched comparable before you move forward will save any nasty surprises.

Any final words of advice for prospective franchisees?
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Remember that, as a buyer, you’re in a powerful position. Every franchisor needs good franchisees and if you are good and fit their profile well they will be excited about what your future contribution to the network will be.

And though many prospective franchisees feel and act as though it is, it isn’t a job interview. You’re buying a business you will run, with plenty of support from the franchisor. The meetings you have before form a vital part of a process that helps both parties discover whether or not the fit is right. If your values and expectations dovetail with those of the franchisor, the relationship has an excellent chance of being successful - and fruitful.