Research is an essential element for franchising success, Richard Holden, head of franchising at Lloyds Banking Group, says
A repeated worry I have when speaking to potential investors about to embark on committing their life savings and borrowing a sizeable amount from the bank, possibly pledging their family home as security, is the obvious lack of understanding they have of franchising and how little research they have undertaken into their chosen brand.
Clearly, people entering into a franchise commitment without doing their homework are increasing the likelihood that they will encounter some nasty surprises down the line and ultimately are probably going to see their businesses fail. The saying ‘If you fail to plan, you are planning to fail’ is very true.
British Franchise Association
Three out of every four people who invest in a franchise have never run a business before. With no previous franchising experience, it’s essential they have a good understanding of what it takes to become a successful franchisee. Don’t just rely on what the franchisor tells you - take some independent advice from the organisation that oversees ethical franchising in the UK.
Attend a British Franchise Association franchisee seminar to find out what franchising is all about and get some crucial tips and guidance about researching your franchising options before you make a commitment to invest. This is an essential step to take before pressing ahead with your chosen franchise opportunity. A list of the upcoming seminars is promoted on the bfa’s website.
Once you have a good understanding of what it takes to become a successful franchisee and you’re certain franchising is the right option for you, thorough research is required to select the right brand to invest in.
Look for opportunities that have a proven track record over time, rather than fads that are unlikely to have longevity. Established businesses that are accredited members of the bfa are a great starting point and offer a less risky route into franchising than newer, less established brands.
Once you have narrowed down your options, eliminating opportunities that are too expensive or which will not offer the potential revenue you are looking for, take a look at the industry sector.
Review the market and see if there’s any sector research available to help you. Mintel and Key Note regularly publish industry insight reports, while Lloyds Bank also offers guidance on a range of industries. Speak to trade associations that may be able to provide some invaluable insight into the sector and market trends.
Consider what running the franchise actually involves on a day-to-day basis. This is likely to be a medium to long-term investment for you, so you will need to enjoy what you’ll be doing. Choose a business that complements your personal skills, bearing in mind training will be provided as to how to operate the business by the franchisor.
Involve your family in the decision making process, as your decision will impact on them. Running any new business will be a challenge and may require some personal sacrifices, particularly in the early stages as the business builds.
Talk to established franchisees
Speak to as many existing franchisees as you can and don’t let the franchisor cherry pick who you talk to. It may be a managed process, but you should be free to speak with whichever franchisee you wish to.
Look for franchisees with a similar background to yours and talk with franchisees at differing stages of development. You’ll gain invaluable insight into the brand and the support provided by the franchisor by speaking to several franchisees.
Financial projections are another vital assessment tool. Most franchisors will provide you with illustrations of possible trading performance, but it’s up to you to dig deeper. Find out what the financial projections are based on and the assumptions that have been used. You need to research the local market conditions when compiling your own projections.
Your bank’s franchise team, if it has one, can offer guidance as to its stance towards the franchise brand you’re researching. Lloyds Bank’s Franchise Unit offers expert support and impartial advice to anyone researching franchising options. For the best advice, speak to a bank’s specialist franchise team, rather than a local bank manager.
Lloyds Bank also publishes a list of 30 key questions to ask a franchisor to help you with your research. Some of the questions are those you would naturally ask, however it’s a great checklist to ensure you don’t miss anything and it should help you make an informed investment decision.
The franchise agreement should be checked and explained to you by a knowledgeable franchise solicitor, preferably one who is accredited by the British Franchise Association, before you sign it. Lloyds Bank’s Franchise Unit offers a franchise agreement review service in conjunction with a reputable franchise solicitor at discounted rates.
Franchising offers the opportunity to run your own business with a potentially high success rate, provided of course you select the right franchise in the first place. There are never any guarantees in business, but you can increase your chances of success by following these key steps. Don’t rush your research, as you’ll have plenty of time to reflect on a costly mistake, so try not to make one.
- Consider whether you’re suited to franchising.