Questions to ask before investing in a franchise

These are the questions prospective franchisees need to ask a franchisor before signing on the dotted line, Michael Hawkins, sales and marketing director at Mail Boxes Etc, says

The continuing success of the franchise sector is encouraging record numbers of people to consider buying a franchise. The 2013 NatWest/British Franchise Association franchise survey confirms that franchising enjoyed 20 per cent growth since 2008. There are now almost 1,000 franchised brands operating across multiple business sectors, contributing some £13.7 billion to the economy in the last 12 months.

For people keen to become part of this dynamic and fast growing sector, there are a wide variety of opportunities across many different types of business. Buying a franchiseis not the same as buying a job, but a unique opportunity to have your own business with training and support. Franchising is a long-term personal and financial commitment, with many benefits and advantages, and can bring substantial rewards.

Careful consideration
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Taking such a big step needs careful consideration, so thorough research is necessary to understand the fundamental principles of this business method, as well as the obligations and responsibilities of both franchisor and franchisee.

Prospective franchisees need to ask themselves searching questions about their reasons for wanting a change, their suitability to be self-employed, as well as their talents and skills, likes and dislikes, resources and domestic commitments and their long-term ambitions.

After probing self analysis and satisfying any self doubts, prospective franchisees should then start to investigate the pros and cons of franchising. This may produce questions, but the most straightforward ones can usually be answered directly from the franchisor’s prospectus or website or from a wealth of generic information published by the British Franchise Association, franchise magazines, specialist websites and exhibitions.

Key topics
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I strongly advise prospective franchisees always to get information about the following specific and vitally important topics:

* The franchise itself, background and history, current operation and size of the network.

* The total investment and what it covers.

* The importance of location.

* The potential for sales and growth in the prospect’s area.

* How much training and ongoing back-up support is provided and for how long?

* The stability of the franchise and how much change in franchisees there has been.

* The reasons for these changes.

* The importance of timing to the opening of a franchise.

* How franchisees’ investment and interests are protected.

* How much autonomy franchisees have and what are the strictures?

* How much are franchisees encouraged to contribute ideas for the benefit of the business overall?

* What opportunities are there for franchisees to help steer the network?

* How much help and mentoring can a new franchisee expect from an established one?

* What help is given by the franchisor for promotions, networking and local marketing - and for how long?

* How creative can franchisees be with marketing? Or must they stick rigidly to the corporate image?

* Can the term of the franchise agreement be changed or shortened? Or would there be a penalty for any change?

* What are the chances of expanding a franchise by running several outlets? How quickly might that be achieved?

* What happens in the event of disasters and personal dramas so bad that the business could not continue?

Or if a franchiseejted - or even closed down - by extreme bad weather?

From my own experience, I know that many prospective franchisees ask lots of questions because they need reassurance - their caution often arises from lack of proper understanding of franchising. Typically their questions are ‘what if’ ones concerning protecting and safeguarding their interests - their investment, area or territory, long-term future and maintaining their family’s standard of living.

Thorough process
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Experienced and reputable franchisors expect prospective franchisees to ask questions and are always willing to answer them, sometimes more than once. They encourage prospects to take legal advice from a specialist franchise lawyer, who can explain clearly the terms and conditions of an agreement before a franchisee signs it. This is especially important, as it is in everyone’s interests that there should be mutual trust and total understanding between franchisee and franchisor and to ensure the creation of a successful, strong and cohesive franchise network.

Some aspects of franchising are fundamentally the same for all franchises - franchisees must follow the franchisor’s system, adhere to the procedures set out in the franchise manual and train staff to do likewise, maintain the same corporate brand image and operate within the terms of the franchise agreement.

Despite operating similarities, there can be great variations between franchises in different trade sectors and what applies in one may not be followed in another, so don’t assume anything. Never feel embarrassed about asking a franchisor a question - keep in your mind that you may be about to enter an equal and mutually beneficial partnership that could last a long time. It is essential you have a clear understanding of everything that is involved in buying a franchise from the outset and precisely what you’re letting yourself in for.

Set up a meeting
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A meeting is the best way to find out everything you want to know. It has distinct advantages, not least because it provides an equal opportunity for both parties to ask questions and assess each other. Being able to talk face to face is quicker and much more efficient than accessing information remotely or from printed literature. It also builds trust.

However detailed and well written factual information is, it can be hard to understand if you’re new to a subject. You don’t necessarily get clear answers about your individual circumstances, especially if you are researching online and, infuriatingly, your specific question is the only one that doesn’t appear on a drop-down menu on screen.

Before arranging a meeting with a franchisor, do some homework so you are as well informed as possible about the business and its sector.

Study all the information provided and pay particular attention to key topics, such as what the investment covers or how to access help if things go wrong.

Prepare well for the meeting, as this will save both you and the franchisor a great deal of time. It will also impress the franchisor that you have taken the trouble to research the business and will be taken as an indication of your serious intent.

At a more advanced stage, franchisors usually provide contact information about their franchisees and invite prospects to contact any of the people in the network to find out about their personal experiences of being a franchisee.

Speak out
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In summary, ask whatever you like, because you must feel confident about the franchise before making the commitment or parting with any money. Never be afraid or feel inhibited to ask anything you need to know or for an explanation of things you haven’t understood. It is crucial that prospective franchisees have a thorough understanding of the business they are about to buy into, exactly what is required of them and what they can reasonably expect from the franchisor.

Having achieved that, if you still have concerns, go through them with a specialist franchise lawyer while he or she is scrutinising the franchise agreement on your behalf. The lawyer will soon spot anything untoward and raise concerns to refer to the franchisor for more clarification.

Does the franchise meet your expectations? Will you enjoy the work involved in the franchise? Will the franchise fulfill your dreams and satisfy your ambitions for business success? If you feel confident and excited about the future, follow the lead of 22,400 current franchisees and go ahead.

In the final analysis people often trust their instinct and go ahead if they like the people they have met and believe they could work well together.

If there is mutual trust and the chemistry seems right, the franchise partnership is destined to be. Maybe it’s not very scientific, but almost invariably this approach works extremely well.