There are three established routes to entering the franchise industry, says Derrick Simpson, managing director of Franchise Resales
It may not be immediately obvious to you when looking at a franchised opportunity, but there is more than one way of establishing a franchised business. In fact, there are at least three different routes available to you to consider when starting out in business with a franchise.
The straightforward way of entering the franchise sector and joining a franchised network is to start from scratch with a new ‘greenfield’ operation. Decide upon your level of investment and available working capital, then look at the business sectors that both interest you and which are affordable. To filter your options further, meet franchisors within that sector to find the ones with the right approach and support system for you. Then speak with a selection of their existing franchisees to refine your selection down to the one that is right for you.
A slightly more complex way of becoming a franchisee, though one which may well be more cost effective for you, is buying an existing franchised business from an existing owner - a resale.
Complex because you are looking at not only the franchisor’s offering, but also the detail of the business you are considering buying. More cost effective because you should be able to get a faster growth, as you are not starting from a zero base. The business is trading, so there is cash flow and customers from day one and this means an opportunity to drive the sales faster.
The additional complexity need not be a problem if approached in the correct, structured manner. It is important you are provided with all the information you require to make a considered decision - not just a set of accounts and some sales information about the franchise. You should receive a structured prospectus of sale detailing the history of the business, the marketplace in which it operates, the scope for growth, the specific costs of the business (including staff and property if applicable), as well as receiving the financial accounts of the business.
It would help you to have this provided by either the franchisor or a specialist firm, such as Franchise Resales, which understands the way the business operates and also how the specific franchise system works. You are not only looking at the local business to buy, but also the franchisor network, so it will help to have someone who can advise on both aspects rather than simply introduce the local business for sale.
Funding for resales need not be difficult because banks like investing in most franchise resales and the legal process, equally, can be smooth. In both cases the secret is in using specialist franchise professionals who are affiliated to the British Franchise Association. Don’t just pop into your local high street bank, contact the national franchise unit. Don’t use the solicitor who did your house conveyancing or your will, use a franchise specialist. See www.thebfa.org for details.
So that is buying a new franchise or buying a resale. What other options are there? Surprisingly enough there are also franchisor networks available for sale and these need not be priced out of your option range. Clearly, to buy a huge established network of trading franchisees is not something most people looking at franchising would consider. Depending however on your skill set, motivation, objectives and available funds, you could consider small franchisor networks or master licences in your decision making mix.
Becoming a franchisor is a different mindset to becoming a franchisee and a lot will depend on your goals in establishing a business and ability to motivate and lead people. As a franchisor, the main interaction is with your franchisees, whereas being a franchisee means your main interaction is with your customers or clients.
Naturally, money will play its part, but there are modestly priced businesses, both small franchisors and master licenses, currently available for sale on a confidential basis. There are also skilled bfa accredited professional consultants who are available to help you take on and develop a franchisor network. As with the banks and solicitors referred to above, I strongly recommend only working with bfa accredited consultants.
Consider, therefore, all your options. Starting from scratch with a new franchise, buying a resale opportunity or even pushing out your boundaries and becoming a franchisor with a small network and then growing that.