What questions should you be asking before you hand over your hard earned cash?
History shows us that investing in a franchise is a wise and sound financial move, giving you the chance to build a sustainable, ethical business with the full support of an experienced franchisor. But what questions should you be asking a franchisor before you hand over your hard earned cash?
1. How long has the business been franchised for?
A franchise is a business that was initially run as a regular commercial operation and then offered as a franchise as a way for the owner to expand their own business.
The franchisor will have encountered most or all the issues you will come across as a franchisee, enabling it to pass on its invaluable knowledge and experience, which in turn helps you fast-track your business to success. The longer the business has been running and/or been a franchise, the more experience the franchisor will have.
Many franchises you see on the market today have been trading as franchises for years, so you can be safe in the knowledge they are truly tried and tested models with multiple, successful franchisees able to confirm the franchise’s success.
Investing in a business that has only recently been franchised, or had not been trading for very long before being franchised, carries more risk, but is not necessarily one to be avoided. As one of its first franchisees, you should get more support from the franchisor, which will undoubtedly call on your help and feedback to build a successful franchise model. You’ll also have a wider choice of territories and the purchase price will be very competitive.
2. Are you British Franchise Association affiliated?
Although not all franchises are members of the British Franchise Association, many of the best are. They, like Petpals, have passed rigorous inspection and their franchise model has been found to be financially sound and sustainable.
We would recommend you choose a bfa-affiliated franchise to ensure you are investing in a tried and tested business that’s committed to supporting ethical franchising.
3. How much is the franchise fee and can I pay it back over time?
The price of your franchise is going to be a key consideration for you.
Unless you’re buying a resale with an existing order book and clients, all new territories take time to start earning money and you’ll need to set aside working capital to live off while you build the business.
Banks are often happy to lend to people wishing to buy franchises because of the success of the sector, so if you need help don’t be afraid to approach a bank for a loan. Many of the large high street banks have specialist franchise sections, who will be happy to talk to you.
Some franchises, Petpals included, have a ‘buy now, repay as you earn’ scheme that allows you to repay your franchise fee over the course of the franchise agreement, which can make buying a franchise more affordable for those without access to large deposits.
4. What is a management service fee and how much will it be?
A management service fee (or MSF) is the fee you will have to pay to the franchisor, usually on a monthly basis.
This will cover ongoing costs such as marketing, website, PR, advertising and ongoing management and operational support.
5. Can I talk to your existing franchisees?
You can and you should talk to as many existing franchisees as you need to. A franchisor may very well try to steer you towards talking to its most successful franchisee - and why wouldn’t it? It wants to show you how successful its franchise can be, but it’s important you have access to other franchisees if you feel it is necessary.
The franchisor should also arrange for you to spend the day with a franchisee of your choice, to see directly what is involved in running the business. The franchisor may suggest you speak to someone whose purchase route, territory or background is similar to your own, which makes perfect sense, so do take its advice.
Don’t forget, in franchising, as in life, not everyone is happy all the time, but the most important question to ask is: is there a market for your services and does the franchisor support you well? If the franchisees answer “yes” to both of these questions, that’s a great start.
Remember, if a potential franchisor is cagey about furnishing you with a list of franchisees, proceed with extreme caution.
6. What is included in my franchise?
It’s important you know exactly what you are getting for your money. It’s too late to find out once you’ve signed the franchise agreement that there are large expenses you haven’t budgeted for.
Will you have to buy a vehicle, stock, rent premises, etc? Make sure it’s all clearly written out and that you understand it fully. Always take the advice of a bfa affiliated franchise solicitor before signing anything and ask them for help understanding the franchise agreement if necessary.
7. What are the expansion possibilities with this franchise?
If you wish to increase your business in the future by extending into adjacent territories, you should discuss this with the franchisor to identify the possibilities.
Kevin Thackrah is managing director of Petpals.