You need to investigate a franchise in as much depth as possible to ensure it adapts well in the face of adversity
When the economy is uncertain, the most resilient businesses do best, which is why you should be seeking out a resilient franchise.
The franchising industry tends to grow in recessions, partly because it’s seen as a lower risk way to expand a business and partly because there are more people with redundancy payouts who decide to invest in a franchise.
But that’s not the whole story. Franchising consultant Len Rainford says: “In a recession, some companies that are fearful of going bust will start offering franchises as a rather desperate way to raise money. Prospective franchisees need to be extra careful before investing.”
What is a resilient franchise?
Put simply, it’s one that has proven it can survive and thrive despite economic ups and downs and has the strength, agility and flexibility to prosper in the future too.
So here’s what to consider when looking for a viable long-term partner:
Strength of the sector
Some sectors are more resilient than others. Look for those offering goods and services for which there is always likely to be a demand, such as home care, automotive services and delivery franchises. Research the history of the sector. What patterns of consumer behaviour does it reveal over time?
Karl Sandall, group chief executive at TaxAssist Accountants, says: “Accountancy is a resilient industry because its core services are always in demand. As long as businesses continue trading, they are required to prepare annual accounts and will need to submit a tax return.”
This appears to be borne out by the fact that 17 new franchisees joined TaxAssist Accountants in 2020.
Ginny Murphy, chief executive of wheel refurbishment franchise The Wheel Specialist, says: “When times are good, new car sales are up and people have more disposable income to spend on things like customising their alloy wheels.
“When times are bad, the used car market may be more appealing. Perhaps people will look to repair and refurbish their existing vehicle, rather than buy a new one. Either way, The Wheel Specialist can capitalise on that.”
However, being in a resilient sector doesn’t guarantee survival of any individual franchise because demand for its services is not infinite and there are usually competitors chasing the same customers.
History of the business
Franchises that have successfully survived previous economic fluctuations are likely to be better prepared for future ones. So research the history of the franchise, including how it survived the lockdowns.
Len Rainford, who was previously the franchisor for delivery business Sameday UK, says: “I freely admit there were some bad times and I had people telling me to shut it down, but we had 20-30 franchisees so I didn’t want to. We talked to our bank again and survived for another decade.”
He adds: “If the franchisor will not tell you the full story of the franchise, including their reversals, think twice.”
If you’re considering a relatively new franchise, check it out extra carefully.
Charlie Dickson from Ashton’s Franchise Consulting says: “However long the franchise has been operating, check that the franchise model has been tested with a pilot franchise, who the people behind it are and their experience of the relevant business sector and franchising. Look at its reputation among other businesses and among customers.”
Research the company and its financial history as far as you can.
Andy Fraser, franchise specialist at Albany Fraser Solicitors, says: “In the USA, franchisors are obliged by law to provide a franchise disclosure document to prospective franchisees, which shows all the financial details of the business, its background and that of its owners.
“That’s not the law in the UK, so you must do your own research. You can look up the accounts and owners on the Companies House website.”
Len says: “Check the profitability of the franchise. Franchises require a high level of profits to remain viable because the biggest percentage of the profit margin goes to the franchisees, who typically retain 85-90 per cent of their own profits.”
He recommends using company information providers such as Endole and Pomanda. If you don’t understand the accounts, ask a specialist franchise accountant to check them.
Andy says: “Ask franchisors about their speed of growth. If franchisee numbers have grown from one to 50 in two years, check carefully that the franchise is providing a proper franchisee support structure, such as a central franchise manager and regional franchise managers.”
A small head office and a huge franchise base or ultra-fast growth can be signs a franchisor is selling franchises in order to bring in funds, without having the infrastructure to back up those new franchisees.
Consistent franchisee support
Ask existing franchisees, chosen by you rather than the franchisor, about this.
Charlie says: “Franchisee support is essential, not just because it boosts the resilience of individual franchisees’ businesses, but also because the power of the network working together is one of the things that makes a whole franchise resilient.”
Check what help franchisors offered during the pandemic
Mike Williams, managing director of mobility retailer Ableworld, says: “We furloughed some staff, accessed rate relief options and government grants.
“Support from head office included guidance, advice and offering a month’s free management service fee to ensure franchisees felt comfortable paying their suppliers before turnover dropped.”
Multiple income streams
Karl points out: “Each of our accountants work with hundreds of small business clients, rather than just a few larger ones. Should any clients leave, any impact on a franchisee’s business is negligible.”
Continuous brand building
Karl says: “Each of our accountants is based in a highly visible shop or office and comprehensive online advertising campaigns ensure the TaxAssist Accountants brand remains in the minds of existing and potential clients, with new services continually being added.”
What does demand for the franchise’s goods or services look like in the future? Check what sector experts say.
Karl says: “Small business owners need the services of a good proactive accountant now more than ever and their skills and expertise will be in great demand as we recover and rebuild the economy.”
Technology and innovation
Charlie says: “Technology is now fundamental to innovation and allows franchises to differentiate themselves from competitors.
“Look at the way they used it to remain viable during lockdowns and how they will use it going forward. Are they doing it well and have they plans to upgrade it as necessary?”
7 danger signs: spotting red flags
Red flags are pieces of information that make you think twice about whether a franchise is resilient. When researching a franchise, the following red flags should make you investigate further:
1. A franchisor who is unwilling to let you speak to existing franchisees or insists you only speak to a limited list provided by the company.
2. Franchisors who discourage you from getting the franchise agreement checked by a franchise specialist lawyer.
Andy Fraser, franchise specialist at Albany Fraser Solicitors, says: “Don’t be deterred by claims that all agreements are the same. Firstly, they’re not and secondly, the lawyer will explain the contract terms and ensure you know what you’re signing up to.”
3. Pressure to ‘sign now before it’s too late’. Is the franchisor desperate for cash?
4. Expensive new offices or unnecessarily flash cars for directors. This could be a sign that money is going to the directors, rather than being invested in the business.
5. Extremely fast expansion in franchisee numbers over a relatively short period. This can indicate financial desperation.
6. Widespread complaints from franchisees about poor communication or support.
7. Poor reviews of products/services from customers.
Andy Thompson: The Wheel Specialist
“It was clear the market for refurbishing alloys would grow”
Andy Thompson was The Wheel Specialist’s first franchisee, launching in 2007.
He says: “I was keen on cars and from looking at the market I could see new cars were being made with alloys instead of the old steel wheels, so it was clear the market for refurbishing alloys would grow.”
Within months of Andy opening his business, the 2008-09 recession hit. His business survived and has continued through swine flu, four prime ministers, terrorist attacks, heat waves, flooding, changes in the market, Brexit and now COVID-19.
“The 2008 recession meant that young lads who wanted the colour of their wheels changed no longer had the spare cash to spend, so we lost that business,” Andy says. “But at the same time, instead of buying new cars, people were tidying up their old ones instead, so we gained from that.”
He advises others seeking a resilient franchise to look at the resilience of the franchisees in the network, as well as that of the franchisor. “To stay resilient, franchisees need to look at developments in their market and change strategy accordingly,” Andy says.
“For instance, the diamond cut wheel sector started growing, so we invested £50,000 in a diamond cutter about 10 years ago and we have reduced turnaround times as customer expectations have increased.
“The ability to set business strategy is important for resilience, so you need to be able to step back and work on the business rather than in it. A good franchise helps with that because you can benefit from ideas and methods shared by the whole franchise network, as well as the franchisor.”
Gerald Roper: Ableworld
“Demographics are dramatically in Ableworld’s favour”
“I naturally did my research before committing to becoming a franchisee with the Ableworld mobility store,” says Gerald Roper, the company’s Colchester franchisee since October 2013.
“As a bricks and mortar retail franchise, I fully investigated the business and franchise model because even back in 2013 there was talk of the demise of the high street. After doing my research and meeting managing director Mike Williams, I realised that demographics are dramatically in Ableworld’s favour.
“Ableworld stores are not on the high street. Accessibility is important to many of our customers, so Ableworld prefers easily accessible shops on the edge of town where customers feel comfortable visiting, can park easily and have the opportunity to see, touch and benefit from advice on products.”
Gerald also checked the range of products and the brand’s reputation: “Ableworld has a vast choice of products at extremely competitive prices, has been voted the number one mobility retailer in the country and is the ‘Prestige Partner of the Year’ with Handicare, one of the main stairlift manufacturers in the world.”
Ableworld also sells online, except for products that customers need to be measured or assessed for.
“Another reason I chose Ableworld is because of their strong ethics and ultimately doing what’s best for our customers,” Gerald says.
“The pandemic has been a challenge, but Ableworld, classed as an essential retailer, remained open. Because we were determined to look after our vulnerable customer base during these troubled times, I still have a strong and profitable business.”
Gerald is planning to invest in a second Ableworld mobility store in Clacton after the pandemic.
Roger Bowen: TaxAssist Accountants
“Meet the team at head office and speak to other franchisees”
Roger Bowen launched his TaxAssist Accountants franchise in Llanelli, near Swansea, in 2005.
He says: “I was working as an accountant and growing tired of working for someone else. I wanted my own business, but with the extra support offered by a franchise.”
Roger researched and did due diligence on three possible franchises, all offering tax and accounting services.
“TaxAssist were the only ones to offer me a discovery day at their head office,” he says. “The others just wanted to send me a pack of information and even their marketing literature was a bit sparse and unappealing.”
Roger attended the discovery day and spoke to two franchisees to get feedback from them. He was also attracted by the fact TaxAssist Accountants specialises in smaller businesses, so that the income stream is diversified among many customers.
“TaxAssist gave me confidence from the off in terms of support, training and marketing the brand,” Roger says. “I liked the fact they had a plan of where they were heading and a great team of staff. Everyone in the franchise showed they believed in the brand and in where they were heading.”
His advice to prospective franchisees looking for a resilient franchise is: “Make sure you carry out thorough due diligence. Check everything, meet the team at head office and speak to other franchisees.”
Linda Whitney writes about franchising for the Daily Mail, What Franchise and many other publications