Becoming a franchisee

Franchising expert Alan Wilkinson asks if it’s the right time to become a franchisee

There is no doubt that we are in troubled times, with continuing austerity measures and uncertainty. We hear on the news the trials and tribulations of the Euro Zone, and wonder what knock-on-effects this may have to the UK economy. We see small businesses struggling, and think that perhaps this is not a good time to start a new business venture. 

What we don’t tend to hear on the news is that the banks are actually still lending, and view franchising as a safe sector in which to hit their lending targets.

Newspaper headlines do not tell us of how franchising now contributes more than £12 billion to the UK economy, or how franchisees are five times more likely to succeed than non-franchised small businesses. 

This year’s NatWest bfa annual survey highlights that although around 3,000 people took on a new franchise last year, the lack of good quality prospective franchisees is a major block to franchisors achieving their goals. This makes anybody considering buying into a franchise a sought after commodity. 

By the very nature of the fact that joining a franchise involves becoming part of a tried and tested system, with the help and advice of people who have been there, seen it, done it and got the T-shirt, franchising can offer a fantastic opportunity to start that business, and to buck the perceived trend, and make a success of it. 

Franchisors should have a structured programme for a prospective franchisee to follow, which takes them through the due diligence required by both sides to ensure that all relevant information is made available and investigated, and that both parties are  fully informed prior to the offer and take up  of a franchise.

This should involve a series of meetings, perhaps both at the franchisor’s offices and in the prospective franchisee’s local area. The operation of the concept, projected financial performance, and assessments of the viability of the business both for that local area, and for that individual should be covered. 

Often a franchisor will make available to their prospective franchisees the services of an independent franchise consultant to work with them on business planning, bank funding applications, and personalisation of financial models. This can help the candidate come to a fully informed decision on the suitability of  the concept for them as an individual, and its viability in their geographical location.

Anybody considering taking on a franchise should beware of franchisors who are simply looking for somebody with a pulse and a chequebook. An ethical franchisor should have a full due diligence process in place, ensuring that they know enough about the candidate to understand that they match the desired profile of franchisees, and that sufficient information is given in order for an informed decision to be made to join their franchise. 

This due diligence program should include a number of face-to-face meetings, a suite of documentation from a non-disclosure  agreement through to a franchise agreement, and should also include the opportunity of talking to existing franchisees. If the concept is particularly technical or taxing, then time spent working with a franchisee, in the franchisee’s business may also be included in this process.

Choosing the right concept involves a number of variables that must be considered. Firstly, choose an industry sector that interests you, or that you think you would be good at. Secondly, look at the investment levels, including working capital that you can afford, taking into account available bank funding. Thirdly, research the various franchise media to find suitable brands, and shortlist you favourites. It is at this point that the processes outlined above come into play, and you can start to make your first steps towads your new business venture. 

Over the last few years, franchising has proved to be robust. The industry grew in turnover throughout the 2008 – 2011 period, despite the recession. It is reported that 92 per cent of franchisees are profitable, and that record numbers of people are employed in franchising, and this at a time when employment rates overall in the UK  are declining.

So if you are considering starting your own business, this just could be the right time to take the plunge and take the first steps towards becoming a successful franchise owner. 

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