Thinking of Becoming a Franchisee? Read This First

Mark Scott, head of franchising at NatWest, has some expert advice if you’re considering becoming a franchisee

Starting a business based on a franchise model has always represented an attractive prospect, as the industry has proved to be virtually recession proof over the last 10 years.

Be honest

Franchising offers the support of a big brand, along with a tried and tested business model. However, when taking the decision to become your own boss, you need to be honest with yourself:

• Take a critical look at your strengths and weakness. Do you have the temperament and skills to run your own business?
• Make sure you have the support of your family. Don’t underestimate the additional responsibilities and demands on your time.
• Ensure you have sufficient capital. You’ll need at least a third of the startup costs - half for a less established franchise.
• 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 them where possible, but at the very least ask them how their business is performing, whether they would purchase the business again and what support is provided.
• Examine how well known the franchise and its service/product is. A good reputation is a head start in business.
• Research the market. 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 reasonable and value for money. Will the margins be sufficient to support the business after payment of regular fees to the franchisor?
• Is the training provided by the franchisor sufficient to enable you to run the business successfully?
• 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.

Finding funding

If you need external funding to purchase your franchise, you should approach a bank with a dedicated franchise department. This is because:

• 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.
• For established, successful franchises you will be able to raise a greater level of finance for your start-up costs and working capital requirements.
• There may be other related banking products that are offered on special terms to franchisees.