A safe bet

Richard Holden advises that by doing your homework you can make a safe investment with the right franchise

As many as two-thirds of small businesses do not survive during their first three years. The success rate for franchises is significantly better – but it is not guaranteed and there will always be people who start up in business without doing their homework. Thorough research into the franchise opportunity, local market, competitors and the financial projections is an essential element to anyone building a successful franchised business.

Setting up your own business under the umbrella of an established brand and a proven business format should give you a better chance of succeeding. Not all franchise opportunities, however, offer the same level of training and support to their network of franchisees and surprisingly some franchises have a significantly higher failure rate than the sector average of around five per cent per annum.So how can you back a thoroughbred franchise investment rather than losing your money betting on a nag?

So how can you back a thoroughbred franchise investment rather than losing your money betting on a nag?Having decided that you are suited to franchising you need to narrow down the hundreds of franchise options available to you. Many are easy to eliminate if they do not meet your criteria on investment level, the income you require, business type and franchisee selection requirements.

Having decided that you are suited to franchising you need to narrow down the hundreds of franchise options available to you. Many are easy to eliminate if they do not meet your criteria on investment level, the income you require, business type and franchisee selection requirements.

You should have a clear idea of whether you wish to be an owner-operator or manage a team of staff. Be honest with yourself when assessing your own skills and matching them to the particular franchise you are interested in. Investigate any other franchises operating in the same sector before making an approach to the franchisor for further information.

The internet is invaluable when researching information on franchises. Trade magazines and exhibitions are also excellent resources available to you. Fountains of knowledge that are often overlooked are the franchise departments of banks who can offer impartial guidance on the franchise opportunities you are considering. Franchise experts in the bank will often have a very good understanding of how existing franchisees are trading and whether there have been recent failures within a franchise system.

It is essential that you speak to as many existing franchisees as possible to establish the level of support they have received from the franchisor and whether they were able to achieve their start-up financial projections. The franchisor should give you access to their franchisee network if they feel that you are a serious investor, although understandably some may wish to manage the process of contacting their franchisees. Ensure that the franchisor doesn’t cherrypick who you speak to, directing you only towards franchisees likely to provide a positive view of the franchise.

You will need to look at the potential for the business in your chosen local market and research your competitors. A well prepared business plan is vital in helping you secure the financial assistance you may require from a bank. Always approach the bank’s franchise department rather than contacting the local bank-manager directly, as they will facilitate an introduction to an experienced trained franchise manager based locally to you and ensure that the relevant franchise information is made available before any meeting takes place.

Before you sign on the dotted line get thefranchise agreement independently checked and explained to you by a bfa-affiliate franchise solicitor. Don’t be surprised to find these contracts to be weighted in favour of the franchisor. The terms of the agreement for well established franchises are unlikely to be negotiable, however it is important that you fully understand the contract you are entering into.

Before you sign on the dotted line get the franchise agreement independently checked and explained to you by a bfa-affiliated franchise solicitor. Don’t be surprised to find these contracts to be weighted in favour of the franchisor. The terms of the agreement for well established franchises are unlikely to be negotiable, however it is important that you fully understand the contract you are entering into.

Gut instinct and common sense will take you a long way towards deciding whether the franchise opportunity you are looking at is the right one for you. It really is a case of removing those blinkers and thinking through both the benefits and disadvantages of the franchise you are considering. If you can do that, you’re on the right track.

You may also be interested in...