Look Before You Leap, Test The New Franchise and Yourself

There are a lot of factors to consider before you invest in a franchise, Kate Pullen, director of franchise at NatWest, says

Investing in a franchise is becoming an evermore popular option for entrepreneurs - aligning your independent instincts with known brands to build a sustainable business. Before you go further with any idea, you need to be honest with yourself, as there are a lot of factors to consider.

Strengths and weaknesses

Firstly, take a look at your strengths and weaknesses. Do you have the capability, spirit and talent needed to run your own business? And, importantly, do you have the support? Starting a business can take up all of your time and it’s easy to underestimate the additional responsibilities and demands on your time.

Before embarking on any venture, you should ensure you have sufficient capital - you will need at least 30 per cent of the start-up costs or half for a new franchise.

Research is key to success. How well known is the franchise and how do the public view that product or service? Public opinion can be the difference between success and a failure.

Examine costs closely, in particular the franchise fee and monthly management fee. Are they value for money and will your margins be sufficient to support the business after payment? Training is usually provided by the franchisor, but additional instruction might be needed and this should be factored into costs.

Always obtain a full list of existing franchisees - and don’t just speak to those suggested by the franchisor. Find out how the business is performing and what support and service is provided by the franchisor.

Always seek professional advice from an accountant about income and profit projections and from a solicitor about the legal agreement.

We recommend using services that are affiliated to the British Franchise Association.

Approaching a bank

When looking for a bank, it’s a good idea to approach one that has a dedicated franchise department, which 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.

Running a franchise is not without its risks. However, provided you have a sound credit history and a robust business plan, in the majority of cases it will be a rewarding and exciting business venture.