Prepare for take-off

Graeme Jones, head of franchising for the RBS Group, poses some questions to consider before you invest in a franchise

Starting up a franchised business is becoming more and more popular. The franchise model has always represented an attractive route to running a business, more so after the industry has proved to be recession-resilient. For the many people left out of work by the recession, franchising is a great way to start up a business as it offers the support of a big brand with a tried-and-tested business model.

Taking the decision to start a business could be one of the most important ones that you make, so you need to be honest with yourself to find out if you are cut out to be an entrepreneur. Some pointers as to what you should consider would be:

Take a critical look at your strengths and weaknesses - are you sure you have the capacity, temperament and skills to run your own business?

Make sure you have the full support of your family - do not under-estimate the additional responsibilities and demands on your time.

Ensure you have sufficient capital - you will need at least a third of the start-up costs and half for a less established franchise.

Obtain a full list of existing franchisees - don't just speak to those suggested by the franchisor, they may be the only ones that are successful - visit where possible, but at the very least ask them how their business is performing and what support and service is being provided by the franchisor.

Examine how well known the franchise and its service/product is. A good reputation is a head start in business.

Look at the market as a whole - find out who your competitors are and how strong their position is.

Examine costs closely, in particular the franchise fee and monthly management fee, and whether they are value for money; will the margins be sufficient to support the business after payment of regular fees? Is the training provided by the franchisor sufficient to enable you to run the business succesfully?

Seek professional advice from an accountant about income and profit projections, and from a solicitor about the legal agreement. Both should havea good understanding of franchising and preferably be affiliated to the bfa.

While running a franchise is not without its risks, the good news is that if you are looking to raise finance you should not have too much difficulty, provided you have a sound credit history and a robust business plan. Approach a bank that has a dedicated franchise department The advantages are:

• The franchise department will have a good knowledge of the franchise, how it has performed over the years, what the business plan should include and how the franchise will perform in the early days.

• For established and successful franchises you will be able to raise a greater level of finance for your start-up costs. This could be up to 70 per cent of the total finance required. For new franchises the figure will be around 50 to 60 per cent.

Any application for finance, and the whole process of getting your business banking relationship established, will be handled by a manager with experience of franchising and knowledge of the franchise that you are starting up.

There may be other related banking products that are offered on special terms to franchisees.

NatWest recently launched a £100 million franchise fund in order to help boost the sector. This fund, which is endorsed by the British Franchise Association, is aimed at people looking to start up a franchise.

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