How To Select And Finance A Franchise

Mark Scott, Director of franchise development at natwest , looks at the events of 2010, what might be ahead in 2015 and how to select and finance a franchise

As we come to the end of 2014, now’s a good time to reflect on what has happened during the year and, of course, look forward to what may lie ahead in 2015.

While the year began with a little uncertainty with regards to the economy, we have seen continued growth, which has been positive for franchise businesses. At NatWest, we have seen consistent growth across all the sectors franchising touches, both in terms of new franchisees and those expanding, although we have not seen as many new franchisees as in the past.

### Security ###

One reason for this may be down to a drop in the level of redundancies, compared with recent years. The security that comes from a more positive economic outlook may mean those who were looking at franchising as a new method of income may no longer need it as an option.

However, the more stable economy is also encouraging people to look at moving into franchising, perhaps because it was something they always wanted to do, but were wary of in the past. Some people may even be in a position to take redundancy in order to take the plunge and raise funds in the process.

These franchisees are more likely to be fully committed to their businesses. They are well funded and experienced. This situation has been highlighted at recent franchise exhibitions, where the number and quality of visitors has been good. As it typically takes a franchisee six-seven months to start to trade once they begin their search for a suitable franchise, 2015 looks like being a good year.

In the UK there are plenty of franchises to choose from - 930 to be exact, according to the last NatWest/British Franchise Association survey - and this growth shows no sign of letting up.

How do you select one and go about financing it? To minimise the risk, it is always sensible to go with a franchise that is a member of the bfa, although don’t rely on the franchisor’s word alone - you can check the bfa’s website for membership details.

Once you have done that, one of the most valuable pieces of research you can do is to speak to current franchisees. This will give you a chance to understand the everyday workings of the franchise and even identify potential issues to look out for. A key question to ask that could make or break your decision is: “If you were buying a franchise today, would you still buy the same one?”

Before you select a franchise, though, you will need to know whether you can afford to buy one. As a guide, banks, including NatWest, lend up to 70 per cent for a proven franchise and nearer to 50 per cent for a new concept. So if you have £20,000, you can borrow around £40,000 for an established franchise. However, you should always retain some funds for emergencies, so even if you have the full amount to buy the business, you may want to borrow to retain a surplus.

### Service ###

Just as important, though, is the ability to service the finance you obtain. A bank will look at that carefully and what funds you need to live off personally. So you need to be certain the business generates sufficient profit to repay the finance, cover your personal drawings and provide a surplus.

If you’re looking to finance your business, contact a bank’s central franchise team, who can deliver franchise specific support and guidance and put you in touch with a local expert. Whatever your reason for investing in a franchise, Christmas is a great time to relax and spend time with your family, as running any business, even a franchise, will be hard work, especially for the first year or so.