If you’re contemplating become a franchisee, follow these seven steps to finding your perfect partner
So you’re considering investing in a franchise, but how do you choose the right one out of the hundreds operating in the UK in a multitude of sectors? We’ve got it covered with these top tips:
1. Do something you’ll enjoy doing
Choose a job you love and you’ll never have to work a day in your life, someone once said. It’s a maxim prospective franchisees should take note of.
Is there an industry you’ve always wanted to work in? What skills or experience could you put to good use in your own business?
With a tried and tested franchise, you can turn a passion into substantial profits, whether you choose a management model, a hands-on role, operate in the business-to-business or business-to-consumer sectors or work from home.
2. Check out the market
Is it growing or in decline? Seasonal or all year round? Is your chosen franchisor an established market leader or a disruptor new to the industry?
Does the product or service it offers have longevity? How does the competition compare? These are all questions you must answer before you make a financial commitment.
3. What can you afford?
Franchising is not a get rich quick scheme, so don’t fall into the trap of being underfunded during the start-up stage. While 93 per cent of franchisees claimed profitability in 2018, according to the latest British Franchise Association NatWest research, not many franchises guarantee profits from day one.
Make sure you get your sums right. As well as a franchise fee, in many cases, you’ll also be required to pay a management services fee and contribute to a marketing fund. Other costs to take into account could include equipment, initial stock, staff and property costs and working capital.
Because of franchising’s successful track record in the UK, banks such as Lloyds, HSBC and NatWest will consider funding up to 70 per cent of the start-up costs of your franchise, although all require security, such as a charge on your home, against the loan amount.
4. Could you work well with the franchisor?
The franchisor-franchisee relationship is crucial to a franchise’s success, so you must be satisfied you can work with the team at head office and the franchisor’s support staff on a long-term basis.
In the early days, the franchisor’s support will be invaluable. Once you become established, the franchisor will help you achieve your goals, hence the phrase ‘in business for yourself, but not by yourself’, which is often used to describe franchising and is one of the business model’s biggest benefits.
5. Do your homework
You must satisfy yourself that all the information provided by the franchisor about its business is credible.
Take advantage of the vast amounts of information available on the internet, attend online discovery days that are currently being organised by franchisors and speak to existing franchisees about their experiences of running their businesses.
In addition, Companies House is a good source of financial information, as is the British Franchise Association, if the franchise is a member of the body that protects and promotes good franchising practice in the UK.
6. Ask the experts
As part of your due diligence, pay an accountant to take a look at the figures provided by the franchisor that detail turnover and earnings potential during the lifetime of the franchise agreement.
Getting a lawyer who’s familiar with franchising to check out the franchise agreement you’ll be expected to sign before you become a franchisee will also be money well spent. They may not be able to alter the contract but will be able to explain to you what your obligations are and highlight anything unusual within the agreement.
7. Go with your gut
Don’t be rushed into making a decision when it comes to investing in a franchise.
You’ll be spending a large sum of money and committing a significant amount of time to the partnership - at least five years and sometimes longer.
Once you’ve completed your due diligence on the franchise you want to invest in, go with your gut feel about the business. And if you feel it’s too good to be true, it probably is.
The size and scale of the UK franchise sector
- There are around 900 franchises in existence.
- Nearly 40 per cent of franchises can be run from home.
- An estimated 48,600 franchise units operate.
- The industry turns over £17.2bn annually.
- 710,000 people are employed in the sector.
- 93 per cent of franchisees say they’re profitable.
- 60 per cent of franchises turn over more than £250,000.
- Around 33 per cent of franchisees run multiple units.
Source: 2018 British Franchise Association NatWest franchise survey