Mark Scott, director of franchise development at NatWest, provides top 10 tips on buying and financing a franchise
Mark Scott, director of franchise development at NatWest, provides top 10 tips on buying and financing a franchise
Here are the top 10 tips to consider when buying a franchise:
1. Take a critical look at your strengths and weakness. Are you sure you have the capacity, temperament and skills to run your own business?
2. Make sure you have the full support of your family. Do not underestimate the additional responsibilities and demands on your time, which will inevitably cause some strain.
3. Ensure you have sufficient capital. You will need at least a third of the start-up costs, and half for a less established franchise.
4. Obtain a full list of existing franchisees. Don’t just speak to those suggested by the franchisor, as they may be the only ones that are successful. Visit franchisees where possible, but at the very least ask them how their business is performing and what support and service is provided by the franchisor.
5. Examine how well known the franchise and its service/product are. A good reputation is a head start in business.
6. Look at the market as a whole. Find out who the competition is and how strong they are.
7. Examine costs closely, in particular the franchise fee and monthly management fee, and whether they are reasonable and value for money.
8. Will the margins be sufficient to support the business after payment of regular fees to the franchisor?
9. Is the training provided by the franchisor sufficient to enable you to run the business successfully?
10. Seek professional advice from an accountant about income and profit projections, and from a solicitor about the legal agreement. Both should have a good understanding of franchising and preferably be affiliated to the British Franchise Association.
Bank lending
NatWest lends to franchisees through a network of specialist franchise managers based across the UK. They have a detailed understanding of franchising and mix this with the knowledge of the location in which they operate.
When dealing with a potential franchisee, the franchise manager will want to know not only which franchise you want to purchase, but details about yourself, as it is the individual and not the specific franchise that we assess. This is because your success will be determined by your commitment and enthusiasm for the business.
Banks will lend up to 70 per cent of the total start-up costs for a franchise, although this may be nearer to 50 per cent for a less established concept. In view of the likely amount required, security, such as a second mortgage on your home, may be necessary. This will be discussed with you during a detailed meeting.
Before we are willing to lend, a business plan will be required and should include details about the franchise; costs; the sector it operates in; local, regional and national competition; your CV; assets and liabilities; and projected financial information. NatWest’s business software, which includes a template business plan, will assist in drawing up your own plan. If you are buying an existing franchise business, we would like to see the actual financial performance - the past three years would be helpful.
Many franchisors will assist in completing a business plan, however our franchise managers will expect you to know and understand the various statements and financial figures it contains. There will undoubtedly be questions about parts of your plan. The financial information, particularly the forecasts, will help you to assess the performance of the franchise in the early months.
If you need to borrow to buy the franchise you choose speak to the NatWest franchise section on 0800 092 9117.
