Cathryn Hayes, HSBC’s head of franchising (pictured), says it’s extremely important that you check the background and business performance of your prospective franchisor and you’re not rushed or pressured into signing the franchise agreement.
Satisfy yourself by asking the right questions and receiving the right answers.
Here are the 20 questions Cathryn suggests you ask your potential franchisor before you buy:
• How long has the franchisor been in franchising?
• What is the background of the directors?
• How much expertise/experience do the directors have in the business they are franchising?
• Is this business financially sound? Ask for three years’ audited accounts and current management accounts if possible. Ask your accountant to look at them.
• Is the franchisor a member of the British Franchise Association? If not, why not?
• Have any franchisees failed?
• If the franchise is new to the market, what pilot scheme did the franchisor operate? Remember that when buying a new franchise you should get a proven business format and as much information as possible on the pilot operations.
• What initial and ongoing training is offered?
• How much support is given in choosing and fitting out premises?
• Is there a market for the franchise’s goods or services? Has there been any market research conducted?
• How much does the franchise cost and what does the price include? How does this compare with other franchises?
• How much will you have to pay on an ongoing basis? This is normally a percentage of turnover or a mark up on goods supplied.
• Are financial projections for the business available? Have you seen any actual trading figures from existing franchise owners that show whether these projections are realistic?
• Who are the main competitors and how do they compare in terms of price, quality, delivery and service?
• Is the franchise operating in a market subject to changes in fashion? Is the business seasonal?
• What sales area is being offered? Is it postcode based or geographically based? Is there a set territory?
• How long is the term of the legal contract and can you renew it?
• Do you have to achieve minimum levels of turnover or buy minimum amounts of stock?
• What will happen if you don’t achieve this?
• Can you sell the business in due course? What restrictions are there on a sale?
This is not an exhaustive list. There will be other questions to ask, but it should give you an idea of the type of research you will need to carry out to ensure you make the right decision.