Tim Harris, chief executive of ChipsAway, highlights seven areas to consider before investing in a franchise
Despite these difficult economic times, there’s one sector that offers real potential for success - and that’s franchising. The most recent NatWest/British Franchise Association franchise survey estimated the industry as a whole to be worth £12.4 billion and growing, with 89 per cent of franchises running at a profit and only 3.1 per cent suffering financial failure.
In the current climate these statistics are nothing short of amazing, particularly when compared to how other non-franchise businesses are faring, and demonstrates that franchises can show real resilience in the face of recession.
For an increasing number of people facing redundancy or worried about their long term employment prospects, franchising offers a strong, lower risk alternative. However, the decision to invest in a business of your own obviously means long term investment on your part when it comes to commitment, hard work and determination. So before you take the plunge, here are a few pointers to consider:
Check out the market potential
The potential marketplace is arguably the most important consideration for any new business start up. A franchise might offer a great product or an exciting new service, but is there proven market demand for it?
Question your potential franchisor about market size and maturity - find out whether it is sustainable, with an opportunity for repeat business and long term customers. Does the market replenish itself - in other words, is it limited or is there a growing pool of potential customers? Any reputable franchisor should be professional, well organised and ready to answer any questions you may have.
Consider the track record
The longer a franchisor has been in operation and the larger the number of well established, successful franchisees in its network, the more comfort you can take. However, always ask for independent access to existing franchisees and check with as many people as possible what their experience has been over the longer term. Most successful and well established franchisors tend to be accredited by the British Franchise Association, so make sure your prospective franchisor ticks that box too.
Ask about training
Comprehensive training and support from your franchisor for the launch of your business is the very least you should expect. The best franchisors, however, are those that provide ongoing support for your business development, with regular training sessions to refresh, update or extend your skills.
Those first few months out on your own are undoubtedly the toughest and can be the loneliest, too. At ChipsAway, we’ve found that established franchisees make great business mentors, providing one to one advice and practical hands-on help, which is invaluable in the early days, so don’t forget to check out the support structure of your potential franchisor.
Good communication is also crucial. Regular contact with the franchisor - and with other franchisees in the network - means that you benefit from up to the minute information from the management team and are able to feed back issues from ‘the sharp end’. It also provides an opportunity for you to share ideas and experiences with fellow franchisees that operate in the same marketplace and face the same issues as you. This feeling of being part of a larger organisation, or ‘family’, goes a long way to counteract the potential for isolation, particularly if your proposed franchise is based on a one-man band format.
Confirm territory size and exclusivity
Territory is another issue to consider. It should be exclusive, clearly defined by map boundaries and, as mentioned earlier, you should satisfy yourself that there are plenty of potential customers for your product or service within your designated area. Check out the competition, too. How does your offering stack up against competitors and how many competing companies are chasing the same business on your patch?
What about expansion?
Different people have their own vision of what success looks like. For some it may simply be operating their own independent business, with a steady income and the flexibility that comes with being their own boss. Others may have strong ambitions to grow a large, highly profitable business.
Unless you have significant capital to invest, you might need to start in a small, low risk way and develop your multi-unit management franchise from there. At ChipsAway, we see a lot of people who want to start as one-man bands, but whose business plan is to expand over time, taking on staff, extra vehicles or even premises in the form of a ChipsAway CarCare Centre.
It’s therefore well worth making sure that the business model you consider lends itself to such expansion, the opportunity for growth is clearly available and, vitally, your franchisor has the necessary experience and support structures in place to facilitate such expansion. Again, talk to those franchisees who’ve been there, done it and got the T-shirt.
When things go wrong
A good franchisor understands that a successful franchise network is key to the success and long-term future of the company. Good franchisors will not stand by and watch hardworking franchisees fail, but will be prepared to invest in extra support or training, wherever possible. On the other hand, if your business goes great guns, find out whether your success triggers a package of benefits that will enable you to build and develop your business, as well as contributing further to the overall success of the franchise.
Remember that you are not buying a job
Simply buying a franchise can’t guarantee success in self-employment. It can provide a blueprint for a profitable business and can give you many advantages, but ultimately it will be your business and your responsibility to make a success of it.
So before you reach for your cheque book, first do your homework.
ChipsAway has been very successful in building brand awareness and generating new leads for our franchise network with a high profile national marketing campaign, including TV advertising and Google AdWords. However, our top franchisees invest in their own local marketing to capitalise on our activity, rather than simply sitting back and hoping the phone will ring.
So check out the market potential, franchisor, brand, franchise package and franchise contract. Check your competitors, but most importantly of all check out your own suitability for successful self-employment.
If you choose wisely and are prepared to put in 100 per cent enthusiasm and hard work, then with the right franchise your investment is a lot safer than it would be in most other places right now.