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Considerations Before Investing In A Franchise

Considerations Before Investing In A Franchise

Pip Wilkins, chief executive of the British Franchise Association, highlights what you should consider before investing in a franchise

With this month’s issue comes a booklet about some exceptional franchisees who are in the running for a major national business award. The bfa HSBC Franchisee of the Year is an extremely difficult accolade to attain, with the standards it takes just to make the finals rising each year, thanks to the calibre of business owners operating in franchising.

If you’re looking for inspiration to start your own business, you need look no further. A good franchise offers a proven business format with initial support to set you up and get you going, plus ongoing support that will keep you in business and help you overcome any problems. The key? Choosing the right franchise - for you.

Structure Is Important

There are a number of things you can do to narrow down the large number of opportunities out there and it’s important your search for the right franchise has some structure to it. After all, investing in a franchise is not about instant success, nor is it a part-time hobby. It takes time and commitment to find the right one and build your business.

What do you need to consider? The first and most important thing to think about it is what you’re passionate about and what you want to do. This will help you narrow down the pot of franchisors. The joy of franchising is that you will be trained by your franchisor, so you don’t have to choose something you’ve done before.

You also need to consider your personal circumstances - do they prevent you from doing anything? For example, if you cannot bear talking to the public, consumer facing businesses may not suit. Equally, if you want to take your children out or spend time with your partner at weekends, a business that requires Saturday work is not going to be the best fit.

Next, look at your finances. Do your homework and find out what you can afford. What funding do you have available? The UK banks, many of which have specialist franchise units, heavily support franchising and can lend up to 70 per cent of the total initial investment required for an established franchise.

Do your due diligence, as market research on the franchise you’re looking at is vital. The franchisor should be transparent about success, where it has performed well and also where it hasn’t. Franchisors will want you to come with some knowledge and understanding of their operation and sector.

Speak to franchisees. During your research, the franchisor will manage a process of you speaking to its existing franchisees. Talk to as many as you feel comfortable speaking to. Ask to talk to a top performer, an ‘average’ franchisee and one that isn’t doing so well, so you can try to understand the factors affecting their performance.

Don’t accept only being given the name of one to speak with. A good franchisor will be open and honest and allow you to speak to any of its franchisees to ensure you get the information you need to make an informed decision.

Take note of bfa membership. I don’t say this just because I lead the association. If the franchisor you are looking at is a bfa member, you already have a certain level of assurance that the business has been independently measured against an ethical code of franchising practice. We don’t just let anyone in. Franchisors have to go through a rigorous accreditation process to be able to use our badge.

 

Take Specialist Advice

It’s also important to take the right advice from accredited professional advisers. Understanding the legal agreement and what your rights and obligations are under that contract is key. A specialist will highlight anything unusual and identify any possible problems.

Finally, franchising is not a quick win or an easy option. Although franchises are statistically more successful than other business start-ups, it’s by no means a license to print money. It takes hard work and determination to make any business a success; with franchising you have the back-up and support of the head office and fellow franchisees.

Take your time and do your homework and you might be appearing in a future booklet celebrating some of the best in the business.

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