New orders

Starting a new franchise is a steep learning curve. The risks are usually higher in the first year, and the profits lower - but new enterprises also have the energy and drive to expand fast.

According to this year's NatWest/bfa Franchise Survey, the support of a good franchisor can make all the difference in the vulnerable initial period. "The first two years of any business are critical: turnover and profitability are low, and start-up costs high - and with one in eight recent franchisees claiming to receive no contact, the odds on business failure are going to be increased substantially," says the survey. Yet most successful franchisees have the backing of a good franchisor to get them off to a strong start.

Launching a new franchise can mean substantial costs for both franchisees and franchisors. And recruiting the right franchisee is just as laborious - on average, franchisors interview eight people before they find the right candidate, with an average of 10 for bfa members, though the survey found that many applicants let themselves down by dressing inappropriately, filling in the application wrongly, or simply failing to turn up.

So it pays to get it right. New franchises are the most dynamic, according to the survey, with the most ambitious plans to expand. And while overall start-up times can be lengthy - an average of at least four months in transport and vehicle services, and longer elsewhere - those start-up times are improving too, as franchisors and successful franchisees streamline the start-up process. Yet new franchisees also face the greatest challenges. "Setting up a franchise takes more than entrepreneurial verve - it requires a substantial amount of start-up capital," the researchers found. With the average total start-up fee this year running at £64,900, the costs are vast - the fee, along with equipment costs and working capital, makes up 85% of start-up costs.

With many new franchisees relying on bank borrowing, the help of a good franchisor is often crucial in raising that initial investment. So is ongoing support to overcome the glitches and turn to profitability: "Surviving the first two years is crucial," researchers found - just 26% are profitable over the first two years, compared to 47% after five years. And despite the economic slowdown, that's an improvement, the survey found - fewer new franchisees this year reported a loss than in the year before.

So what are the secrets of turning a profit, and avoiding the pitfalls, over the first year or two? "Support from the franchisor is absolutely essential, because we take the view that we're not just selling the franchise but continuing to support it too," says Garth Allison, Fastsigns' managing director.

"We aim to get people to that break-even point as soon as possible, which could be 18 months, it could be two months or nine - what makes the difference is the owner. This isn't about get-rich-quick, but get-rich-slowly."

And the system works. He proved the point by buying a Fastsigns franchise himself, which he later passed on to his son. "There's no secret," he says. "It's just following the system. But we know it works, and as long as franchisees do their due diligence and use that system, we're always there to help."

And while the statistics show that the risk of failure in any business is higher initially, a supportive franchisor can make all the difference, says Nigel Toplis, Recognition Express' managing director, who has frequent one-to-one and phone contact with new franchisees and describes himself as "offering a smorgasbord of support."

When things do go wrong for new franchisees, says Mr Toplis, it's usually for one of three reasons. Franchisees can fail to meet the targets everyone expects for personal reasons - bereavement, divorce, or simple loneliness and missing office camaraderie. They may simply be lazy and reluctant to put the time in - or believe they can do things their own way."They pay a franchisor a substantial sum of money and then think they can do better themselves, and 99 times out of 100 it doesn't work."

A good franchisor's initial training and ongoing support, especially through the first year, are the key to success for new franchisees. Andrew Mason, managing director of Debt Clear Solutions, says that there are some wonderful opportunities out there for new franchisees who choose their franchise carefully.

The current banking crisis means great opportunities for new franchisees, he says, in a new £50 billion industry where he argues that over 80%  of credit agreements may be unenforceable when scrutinised by a lawyer.

And while Mr Mason emphasises that the franchisor chooses its franchisees with care, the company is now running a pilot which gives new entrant Bernard Eley exclusive rights over a Gloucestershire territory with 20,000 potential clients.

"We are actually finding that lots of mortgage brokers and independent financial advisors now want to become franchisees," says Mr Mason. "And it's not hard to see why in the current climate. We believe in offering the maximum potential for the least amount of money, for the right franchisee with training and commitment." Earnings which can reach £100,000 in the first year can then soar beyond the £500,000 mark in year three, he adds.

And for new franchisees who use their franchisor's support and have real get-up-and-go too, the rewards are enormous, says Mr Toplis. "When it goes well, it's like nothing on earth. I talk to franchisees who've just hit the half million mark, and they're beside themselves - they love it. When a franchisee really makes it work, as most do, it's simply fantastic."

Fastsigns

Even with a long track record in management, Fastsigns Gloucester franchisee David Riddell found the first year in franchising was a challenge. He used a redundancy package and his own savings to fund the new business until he broke through to profitability, and accepted other people's help too.

"The Fastsigns business consultant even helped us find the right premises in a location with a decent traffic flow, and helped us negotiate the terms of the lease," says Mr Riddell. He found customers through old business contacts, by networking, via passing trade, and through other Fastsigns suppliers too.

And learning to cost jobs accurately is a skill he learned fast. "In the beginning we had some difficulties getting vehicle graphics right, and then had to correct the work which took time that we weren't paid for," admits Mr Riddell.

Yet in spite of hiccups, the team hit their sales target that first year, and plan to double it in 2009. After some initial teething problems, the future is looking good.

Debt Clear Solutions

With a long track record of self-employment, selling property in Spain and building up successful dressage stables, prospective franchisee Bernard Eley was just too good to miss - and new franchisor Debt Clear Solutions snapped up Mr Eley as part of its pilot project.

Launching in mid-August, Mr Eley found that the franchisor helped him hit the ground running. "I was impressed by Andrew Mason's ability to put together a system which would deliver to franchisees like me as many clients as we could deal with," he says.

With many clients up to £50,000 in debt having signed up to unenforceable credit agreements, the main challenge is persuading them that he can release them from the debt. "People tend to believe it's too good to be true," says Mr Eley.

And unlike many new franchisees who leave the corporate world and have difficulty motivating themselves away from office routine, Mr Eley's years of self-employment mean he has no such problems. "I'm one of those people who wake up in the morning motivated," he says. "So I'm down there with the horses first thing, and then throw myself into work. Knowing you're helping the people who need it makes it all worthwhile."

Interactive Music Club

Singer songwriter Kym Dabinett-Jays was searching the internet for session work when her son started school - but her eye was drawn instead to an attractive franchise. Interactive Music Club offers singing games and musical activities for primary age children, and Ms Dabinett-Jays knew it was for her.

So in April last year, she started a week's intensive training with franchisor husband-and-wife team Erik and Sally Wagter. "That was fantastic, but then it was rather like bringing a new born baby back from the hospital - suddenly you're on your own," she says.

Her first after school class drew just 12 children, but numbers rose fast as word spread.

Now son Oliver, six, joins her in school holiday sessions and classes. "It's totally brilliant, because it means I never have to worry about childcare, and he's a total star," says Ms Dabinett-Jays, based in Arundel. "And I was surprised at how fast I got to grips with book-keeping and running my own business.

"Working with children is brilliant and I love it," she adds. "My only regret is that I didn't start doing this years ago, because it's simply perfect."

Promobikes (Yorkshire) Ltd

With a well-paid job as marketing manager of a shopping centre, Steve Lydiatt was not looking for a franchise opportunity. But when he spotted details of Promobikes, he knew that the marketing tool was too good an opportunity to miss.

As the only UK franchisee of the international franchise, Mr Lydiatt says his first year was the toughest. Well aware that cash flow problems can be acute in the first year of any business, he used his notice period to circulate marketing material and tap contacts so he could hit the ground running in the first week of business.

"And I kept costs down as far as I could, in that first year," he says. "I worked from home, using a laptop, and bought a cheap van. I stored everything in my mum's garage. I negotiated to buy just one bike initially, and a second within 12 months."

He also kept costs down by pedalling himself, until he realised that meant peaks and troughs of business as the sales side suffered.

Then he started recruiting staff, building a profitable business that first year which has now laid the foundations for a much stronger one.

Recognition Express

When Stuart Fisher told his wife Bev that he planned to become Recognition Express' Harrow franchisee, she admitted she thought he was having a mid-life crisis. And even as a qualified accountant and former finance director, he found the first year challenging.

"I had to learn to be very disciplined with my time - it's easy to waste time," says Mr Fisher, who says that having your office at home means it's harder to switch off: "I'm forever checking or replying to e-mails, or preparing quotes."

And after 20 years working for companies with no time off for illness, just the occasional cold, he had to go into hospital for an operation seven months just after buying the franchise, which meant an unforeseen interruption.
Yet having the office at home meant he could pick up quickly again, and hit the first year's target of £75,000 worth of sales. "We'd like to double our turnover and profit in 2009, and the number of clients wanting repeat orders too."

And his advice to other new franchisees is simple: "Enjoy it and work hard, plan your time carefully, make sure you get your invoices out on time, and keep a watchful eye on your cash flow. And network as much as possible."
A good first year simply paved the way for an even better second year, he believes.