FRANCHISE OPPORTUNITIES

David Williams of RBS and NatWest provides some expert advice on how to choose the right one

The number of franchise opportunities to choose from continues to increase, as franchising becomes a more and more popular business expansion method. As such, it is vital a potential franchisee undertakes as much research as possible and takes their time making their decision. This should not be rushed into, as there are many aspects to investigate, questions to be asked and professionals to consult.

Before signing any legal agreement or making a financial commitment, thorough research is crucial. You must satisfy yourself that your chosen franchise is a proven, well established business with a demonstrated track record of satisfied, successful franchisees.  The acid test is to speak to as many of the franchisees as possible to gauge what they think about the franchise, the initial training, the support they receive from their franchisor and how they are performing. It is also a good idea to visit franchisees to get a better understanding of the way the business operates at first hand.

Named list
To find this out, obtain a full list of the franchisees. The named list should match the number of franchisees the franchisor states it has. Any less and it may be providing you with a list of the satisfied or good performing franchisees only, or it has misled you in the number of franchisees it has. 

This is not as easy with a new franchise, particularly if you are its first. In this instance, you must satisfy yourself that the franchise has been piloted and the results provided to you. The franchisor should have, or used, people with a proven track record in establishing a new franchise. The management must also have experience in their industry.

Always seek appropriate professional advice, including guidance from a suitably experienced solicitor who is affiliated to the British Franchise Association. They will be able to explain the clauses in the legal agreement to you and, although it is unlikely the franchisor will amend any of the clauses, you should be aware of their implications.  To use an analogy, you should not buy a house without having a survey, so do not buy a franchise without having the legal agreement checked out.

An assessment of the franchisor’s financial stability should also be undertaken to ensure it has the funding to support a growing franchise network. You can do this by asking your accountant to review its accounts or by obtaining a status enquiry on the franchisor through your own bank.

RBS lends to franchisees through a network of accredited franchise managers based across the UK. They have a detailed understanding of franchising and combine this with the knowledge of the location in which they operate. 

When meeting with a potential franchisee, the franchise manager wants not only to know which franchise they are purchasing, but also details about themselves as an individual. This is because their success will not only be determined by the particular franchise system they go into, but also their dedication and enthusiasm for the new venture.

As a general rule, a bank will lend up to 70 per cent of the total start-up costs of a franchise, including working capital, although this may be nearer to 50 per cent for a new or less established concept. Depending on the amount of borrowing, security, such as a second mortgage on your home, may be required. This will be discussed with you during a detailed meeting. 

Business plan
We will need to see a business plan, which should include details about the franchise; costs; sector it operates in; local, regional and national competition; your CV; assets and liabilities; and projected financial information.

Many franchisors will assist in preparing a business plan and there are also independent specialists who can assist you. However, our franchise managers will expect you to know and understand the various statements and financial figures it contains, as there will undoubtedly be questions about parts of your plan. The financial information, particularly the forecasts, will help you to assess the performance of the franchise in the early months.

The RBS Group does not warrant, endorse or recommend any franchise. The decision as to which franchise to buy is left to individuals, who should undertake thorough research into the franchise.

David Williams is director, franchising at RBS England & Wales and NatWest Scotland.

For more information visit www.rbs.co.uk/franchise