Six steps to build a successful franchise business

Nigel Toplis, managing director of three successful franchises, looks at the process you need to go through and the questions you should be asking before taking the plunge into the franchising deep end

It’s a crazy mixture of conformity and individuality that combines the best elements of big business and small operations. To be successful, a franchisee must comply with the franchise system and through following the proven business formula will achieve a greater level of fulfilment.

Once called a nation of shopkeepers, Britain is seeing a latent but massive and increasing desire amongst its population to run our own business, which goes across culture, race, age and social background.

While there is no template for being a successful franchisee, the following traits are commonly found amongst those who excel:

* Willingness and propensity to work hard.

* Acknowledgement to follow and adopt the franchisor’s system.

* A desire to succeed.

In franchising success comes from the careful and well researched marriage of franchisor and franchisee. The phraseln business for yourself, not by yourself’ captures the essence of franchising. If you open your own business you are responsible for every aspect, whereas with a franchise the franchisor offers experience, know-how, proven operation methods, marketing tools, sales training and technical guidance, as well as a corporate identity, trademarks and the all-important brand.

Franchising is very much a two-way street, where the franchisor can achieve faster expansion, more money and gain a higher return on capital employed. For this the franchisee gets a proven business system, which will incorporate all of the benefits mentioned above - and much more.

With franchising you get all the benefits of ‘corporate’ head office support and you’re part of a network of people who can share best practice, advice and insights. The franchisor is there to provide both guidance and advice, but also training, marketing tools, programmes, collateral, procurement (if relevant), plus technical and sales support throughout your period in the franchise.

But with over 84o business format franchises in the UK, how does a prospective franchisee select the right franchise? It can be both difficult and confusing at times. Choosing your franchise is something that should not be rushed or done on the spur of the moment, so consider these six key steps when looking for the right franchise for you:

Suitability
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A good franchise should have:

* A proven business history.

* Documented systems.

* Effective training.

* Security of tenure.

* An ongoing support structure.

* Membership of the British Franchise Association.

If a franchise doesn’t offer the above, you should question whether you want to proceed. But assuming the above are in place, your next step is to match your requirements with the market availability.

Think about these two questions:

* What type of business might you like? Check out the market using key sources such as the bfa, franchise magazines and franchise websites.

* What skills do you have? Many franchisors are not looking for production/operational skills, but rather skills in sales, marketing and relationship building. Remember, the franchisor will train you in skills pertinent to its operation.

Investment
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A franchise is an investment, not a job. You need therefore to determine exactly how much you need to invest and, most importantly, how much you’ve actually got. A crucial question at this stage is: how much do I need to earn to deliver the lifestyle I am used to and meet my committed outgoings? There is no point taking on a business that will only generate half of what you need. Also beware of over extending yourself - be sure you can raise the requisite funding and make the repayments through the business. Franchising does mean you have to invest not only time and energy, but also money. However, you’ll be amazed just how much you have got.

The industry
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Evaluating a franchise is all about asking questions - the right ones and lots of them. When considering which industry to get into, ask yourself the following:

* Is it a good market?

* Can demand be sustained?

* Is the industry growing or declining?

* Do a few key players dominate? If so, do they compete aggressively?

* How do competitors build market share?

* Do other industries have products and services that could make inroads into this one?

Making the comparison
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Hopefully by now you will have found a number of franchise companies who meet the first three criteria. Now you need to compare and judge each opportunity.

Analyse the franchisor by checking with the bfa, Companies House, franchise magazines, and asking the following questions:

* Are there other franchisors in the industry? If not, why not?

* Is your preferred franchisor the largest operator and/or a key player?

* Is it an insignificant newcomer, but with a brilliant new slant?

* Does it offer the best package to you as a customer?

* How often does a consumer buy the product or service?

* Do the products or services enjoy repeat business?

* What is the typical value of a sale and the typical profit? How many customers would you need to meet your minimum business projections?

* Does the franchisor seem profitable?

* Does the franchisor offer the best potential for growth? Meet the franchisor and ask about:

* Profitability. Ask for three years’ reports and accounts.

* Knowledge. Question it on the market and market trends.

* Success. How long has it been in business and how successfully?

* Vision. Is it a serious player or full of platitudes?

* Support. Ask to see detailed support plans. Examine the company organisation chart and note improvements made to its systems (or not). Are you forced to buy company product? Does it have the manpower and intellect in each key business area?

* Chemistry. Do you like the franchisor and head office team? Could you see yourself working with the company and will it be able to deliver on its promises?

Also, get a copy of the franchise agreement. The franchisor won’t change the document to suit you, but you need to be aware of its contents.

Make sure you speak to franchisees in the network. Most franchisees are more than willing to talk about their business, why they joined the franchise, what their aspirations are and how they’re doing.

Key questions to ask include:

* Are you making money?

* Are you working long hours?

* Do you get on with the other franchisees?

* Has the business affected your family life?

* Does the franchisor offer good support?

* Are you lonely?

* DO you enjoy the business?

* Is the business giving you what you expected when you first came on board?

* Is your family still supportive?

At the end of the day you will be investing in the system more than anything else. If the current franchisees are following it, enjoying it and making a good profit from it, you could do the same. If a franchisee is doing badly, it could be because he or she has departed from the system. Don’t reject a good franchise opportunity because of a weak franchisee.

Advice
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Brian Smart, director general of the bfa, says it is imperative that you take professional advice when thinking of buying into a franchise business. A qualified professional adviser will assist you in understanding the small print to assess the opportunity and prepare a business plan. Good advice will cost money, but it will be well spent.

The franchise agreement is a specialist legal document, and one would always recommend a solicitor with proven experience in franchising. A good accountant can advise on how to set the business up and the various tax implications, as well as business planning and ongoing financial matters.

Decision time
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Ask yourselves these final questions:

* Do your strengths and weaknesses match the success criteria?

* Can you afford the business?

* Is it a good investment?

* Will the ongoing rewards meet your expectations?

* Is there potential for expansion?

* Can you take the pressure?

* Are you confident in the franchise company?

* Are you going to enjoy yourself?

* Are you prepared to work hard to achieve success?

* Will you follow the franchisor’s system?

If you have answered yes to all these questions it is likely that you have chosen your preferred franchise. The selection process is the most challenging aspect of becoming a franchisee, but if you follow the above steps you will be in a stronger position to move forward.