How to choose the right franchise

Ben Brookes, director of franchising at agency express, guides you through the process of successfully choosing the right franchise

For many people, the prospect of starting their own business is daunting and understandably so, because with any new venture comes a level of uncertainty and risk.

The one aspect of business that even the most meticulous entrepreneur cannot guarantee is the security of achieving success and a sustainable income in the early trading period. This is one of the many reasons why more people are now looking to the UK’s wide selection of franchises for sound and credible business opportunities. However, deciding to buy a franchise is a major decision and investment - it should not be entered into without consideration or understanding.

AGREEMENT

A simple quote often used to explain franchising is: in business for yourself, but not by yourself. But by definition, franchising is an agreement where the franchisor permits an individual - the franchisee - to trade under its trademark, who uses its business formulas and processes in order to deliver goods and/or services according to the terms of the franchise agreement.

There are many benefits to investing in a franchise business. The most significant being that your foundations are built on the franchisor’s years of experience, proven business formulas and established brand.

In addition, the franchisor has also invested in the development and success of your business and with any difficulties you may face it’s on hand to support you every step of the way. This is why franchise businesses have higher success rates than standalone start-ups and why many choose the more secure option of franchising.

But franchising is not for everyone. Unlike a standalone start-up business, franchise businesses are not completely autonomous. As part of the terms of the franchise agreement, franchisees agree to comply with the parameters set out in a franchise operations manual.

The formulas built into these manuals are essential to daily and ongoing operations and your franchisor will mandate that you adhere to them. While many prospective franchisees welcome the structure of following a tried and tested system, some people find it difficult.

There are over 900 franchise brands operating in the UK, which fall into a number of categories, including business-to-business, where products or services are exchanged between companies; business-to-consumer, where products or services are sold directly to consumers; blue collar, which refers to hands-on services; and white collar, which involves the sale of professional or managerial services.

Selecting the right opportunity is vital to your success. The first questions you need to ask yourself are: what do I want to achieve? And: ‘what am I good at? Then think about what you require from a business and what type of industry would suit you. Are you a hands-on person or an early riser? Do you need flexibility?

Self evaluating and answering some of these questions will help you ascertain what type of franchise opportunity would be a good match for you.

RESOURCES

With a number of excellent franchise websites and publications to choose from, knowing where to start can be difficult. Your first port of call should be the British Franchise Association. Use its resources to educate yourself on the industry and the opportunities available within it.

Franchises that are bfa members are committed to delivering franchise excellence and comply with a franchising code of ethics. Full bfa members are regarded as the most reputable. These are typically long-standing businesses that have a history of successful franchising. From these franchisors you can expect proven business formulas, extensive training, daily support and ongoing guidance.

Once you have narrowed down a list of franchisors that meet your requirements, review each opportunity in detail. The franchise world is teeming with great sources of information - from exhibitions to free seminars. Take advantage of these by going prepared. Equip yourself with a series of questions to ask each franchisor, note down the answers and then compare them later.

A franchise with successful franchisees and a strong trading history will openly encourage you to do as much research on the model as possible. It will also suggest you speak to existing franchisees and even its competitors. Due diligence will ultimately safeguard your investment and provide you with the extra assurance needed throughout the early days of your new business.

When choosing a franchise, it’s important to remember that it’s an opportunity to build and grow your own business with the support and backing of a franchisor. Good franchises have proven business formulas, but success is not guaranteed. Although franchises have much higher success rates than standalone start-up businesses, owning a franchise requires commitment and drive in order reap the long-term benefits. You get out what you put in.

How much can you invest and how much should you invest? Franchise costs vary depending on the industry and business model. When calculating your budget, don’t overstretch yourself - it’s important to think beyond the initial investment you’ll be making.

As a franchise business, you will incur a management service charge for ongoing support. While the amount and how that is deducted varies from franchise to franchise, you can expect to pay a set fee or percentage of your turnover on a monthly basis.

It’s important to make sure you have the working capital to fund your start-up period without relying on a consistent income. This way you will be prepared for all eventualities.

For many people, one of the greatest difficulties in starting a new business is applying for finance. Franchise businesses are unique in that they benefit from higher success rates than standalone ventures. If you’re considering further finance, talk to the banks that specialise in franchising. Reputable franchisors develop their business models to maximise results and minimise risk. Banks understand there is less risk associated to lending funds to those who have chosen to invest in a reputable franchise with a proven track record.

CONTRACT

Your due diligence has paid off. You’ve met with the franchisor, spoken with existing franchisees and you’re happy to invest your money in your chosen franchise. Next comes the franchise agreement. This is a legal and enforceable contract between the franchisor and franchisee.

When presented with your agreement, it’s imperative you take the time to understand the terms and what is expected of you during the period the contract covers. If you require additional assurance or clarity of the details set out, seek legal advice from a solicitor - the bfa has an extensive list of affiliate solicitors who specialise in franchising on its website.

The early days of your business may not always be straightforward and mistakes are to be expected. It’s important to remember why the franchisor is there and the benefit of a comprehensive support network. The ongoing guidance provided by the franchisor will ultimately guide your through each stage of your business growth, which increases your potential for success.