Richard Holden, head of franchising at Lloyds Bank Commercial, explains how to select a franchise that will enable you to build a profitable business
Prospective franchisees looking to identify the best business opportunities are often met by franchisors that are desperate to stand out from the crowd and shout about how good their franchise is.
There are hundreds of franchise opportunities to choose from, so how can a potential investor narrow down their options and select the right franchise brand for them? There is no short cut - painstaking research is essential for anyone considering franchising as a route into self-employment.
Firstly, you need to decide whether franchising is right for you, as this path will not suit everyone. If you have a strong entrepreneurial spirit and wish to reinvent the wheel, franchising is likely to be the wrong step, as the business model focuses on following a proven system.
You need to be comfortable following instructions and working as a member of a team for franchising to be right for you. However, having to adhere to a system does not mean franchisees don’t have an important role in helping develop the business model. For instance, McDonald’s franchise operators have suggested developments that have successfully led to additional menu items such as the Filet-O-Fish and Big Mac, which have benefited the entire business network.
Assess yourself before making an investment. What do you enjoy doing? What skills do you have? What are your lifestyle commitments? Franchising is a medium to long-term commitment, so you should only consider businesses you could see yourself working in for the next five to 10 years. You do not require previous industry experience for most franchise opportunities, but do consider your own attributes and match them to your target opportunities.
If unblocking a toilet does not sound appealing, a drainage franchise is probably not the right choice and if you have family commitments at the weekend that you are not prepared to sacrifice, a retail franchise is not the best investment. You should have a clear idea whether you wish to be an owner-operator or build over time a management franchise, where you recruit and lead a team of staff.
It is wise to involve your family in the decision making process, as running any new business is likely to mean a change in your lifestyle. You will probably be working long hours at the beginning and holidays may be difficult in the first couple of years while you build the business.
Premises-based franchises usually require a larger investment than home or van-based opportunities. Eliminate businesses that are outside your price range or those that will not offer you the financial return you need.
Banks will consider financing up to 70 per cent of the total investment for a well established franchise brand. For newer franchises that may not have such robust track records, the finance available may be lower than this, as they can represent more risk for the investor, but they can still be worthy of research.
Avoid fad industries and look for franchise opportunities that will stand the test of time. Fish foot spas hit the high street a few years ago, but their success was short lived after health concerns regarding the spread of infections grew.
It is sensible to begin your research with the British Franchise Association. Its member franchise brands have passed an accreditation process and adhere to the standards laid down by the organisation, making this a good starting point.
The franchise community recognises a handful of exceptional franchise brands through various industry awards. Franchisors that participate in Smith & Henderson’s Franchise Satisfaction Benchmark programme are eligible for its 5 Star Franchisee Satisfaction recognition.
This accolade reflects the best of the best and is a useful guide to would-be investors researching their options. A franchisor must meet some important conditions to be awarded 5 Star Franchisee Satisfaction:
* It must have a minimum of 20 franchise owners in the UK and allow the Smith & Henderson research team to confidentially survey its network.
* Based on feedback from thousands of franchise owners, Smith & Henderson awards 5 Star Franchisee Satisfaction to just those franchisors that receive above average feedback in all of the key areas on which they ask for views, including training and support, the franchise system, culture and relationships, stewardship and leadership and general satisfaction.
* At least 50 per cent of franchisees must complete the survey.
* The survey provides a snapshot of franchise owners’ opinions at a specific point in time. Therefore, Smith & Henderson requires franchisors to re-survey annually to maintain their 5 Star Franchisee Satisfaction status.
Speak to as many existing franchisees as you can by asking the franchisor for a contact list of the entire network. Do not let the franchisor cherry pick who you speak to. Carefully chosen questions will give you a good understanding of the business potential and whether it is the right franchise opportunity for you - and look for franchisees with a similar background to yours. It is important to speak to those at differing stages of development to give you a broad view of the business you are looking to enter into.
Before progressing with your investment, ensure there is a clear vision for developing the franchise and you are happy with the direction it is heading. Make sure the franchise legal agreement is checked and explained to you by an experienced franchise solicitor before you make the commitment to invest. Lloyds Bank Commercial Banking provides a legal agreement review service at a discounted rate in conjunction with a leading franchise specialist solicitor.
Lloyds Bank also sponsors a series of free evening educational seminars about the benefits and pitfalls of franchising, which are another key research component for people starting on their franchising journey. For further details and booking information visit www.franchise-seminars.info.
It’s worth remembering that no franchise can offer you a guarantee of success. Some provide better investment opportunities than others and choosing a well established franchise model will give you a head start. Self-employment can be a daunting prospect, but hard work, determination and a large amount of common sense will take you a long way towards achieving your business goals.