At EKW Group, we are committed to providing sound, impartial advice to make you and your business a success!
Some of the more common pressing issues facing future franchisees, include:
> Finding the right franchise opportunity
> Researching ethical franchise opportunities
Whatever your needs, EKW Group’s expertise can advise you on the right solution and then deliver! Contact us on 0800 3898271 and see how we can grow your business.
Finding the right franchise opportunity
Business confidence levels are slowly rising from record lows, according to the latest Business in Britain survey from Lloyds TSB Commercial however difficult trading conditions for UK businesses are expected to continue for some time to come. Business confidence will be the foundation to return to economic growth and lead Britain out of this recession.
Franchising will also play an important role in the country’s economic recovery as it is estimated that nearly half a million people are employed in the UK franchise sector. There are hundreds of investment opportunities to choose from however not all offer you a sound investment. Buying a franchise doesn’t guarantee success however with the right guidance you can significantly increase your chances of selecting the right business for you.
Many people will be concerned at the current economic climate and whether it is the right time to make an investment in a franchise. There is no getting away from it the trading conditions are tough for most businesses at the moment however there are some significant advantages in setting up a business now. There is a selection of vacant premises available and landlords are prepared to negotiate the terms of a lease with favourable terms often available. Interest rates are at a record low and banks are keen to finance viable business propositions.
There are far too many prospective franchisees who take too much for granted and they do not make a proper and thorough investigation of the proposed franchise they are considering. Not all franchise opportunities offer the same level of training and support to their network of franchisees and surprisingly many individuals make a commitment to invest without anything other than basic enquiries.
A franchisor meets many potential investors and therefore will have developed a well practiced sales pitch. You should prepare a list of questions you would like answered so you can lift any smoke screen that the franchisor may have generated. In my experience the overwhelming majority of franchisors that have achieved British Franchise Association (bfa) membership are ethical in their approach to recruiting prospective franchisees however undeniably there are ‘rogue traders’ operating within the franchise sector who mislead and deceive.
Often a simple review of the latest financial accounts for the franchisor will indicate that things might not be as they seem. But many investors do not even make this enquiry. You should be particularly alert to less established franchises particularly if they have not run a pilot operation alongside their core business for twelve months or longer. Clearly some of these opportunities may eventually develop into successful franchise operations however they will initially carry with them a far greater risk of failure particularly in the early stages of their development.
Franchises that have achieved bfa membership accreditation are obliged to adhere to their code of ethics which means that the franchisor should provide a full and realistic picture of their franchise proposition. Don’t however take things at face value. Ask the franchisor for documentation or evidence to support any claims that you consider important in your decision making process. Speak to as many existing franchisees as you can and ask them about their experiences and the support they have received from the franchisor. If you are not happy with the responses received and your evaluation of the franchise then be prepared to walk away.
Is the franchise likely to give you a good return on your initial investment in a reasonable time frame? Is it likely to generate sufficient profits to meet the income you need to draw from the business? How much capital will you require? What is your fall back position if business takes longer than expected to get off the ground? These are important questions for you to consider. The franchisor may provide you with typical financial projections.
You need to establish on what basis these figures are produced. Are they based upon the average performance of all franchisees in the network or are they just taken from the best performing franchisees. Has the economic downturn been reflected in the projections? If the figures provided are unrealistic and will prove difficult to achieve this could be a sign that other information maybe exaggerated. Don’t juggle the figures to make the business work for you on paper. Seek the support of an experienced accountant to assist with the production of your financial projections.
Before you sign on the dotted line get the franchise agreement independently checked and explained to you by a bfa affiliate franchise solicitor. Don’t be surprised to find these contracts to be weighted in favour of the franchisor. The terms of the agreement for well established franchises are unlikely to be negotiable however it is important that you fully understand the contract you are entering into.
One you have satisfied yourself that the franchise you are considering is a viable proposition and you are well suited to running a franchised business it will take a great deal of drive, commitment and hard work to succeed. Operating under the umbrella of an established brand and a proven business format should give you a better chance of achieving your business objectives.
Thorough research is the key to finding the right franchise opportunity. Remove those rose-tinted glasses and don’t rush into making a decision you will later regret. Before making the commitment to invest speak to a franchise specialist bank like Lloyds TSB if you want guidance about a particular franchise opportunity. Remember the bank is likely to have existing franchisees banking with them and the franchise team would therefore have a good understanding of the past and current performance of the franchise you are interested in. Professional advice is just a phone call away.
Richard Holden
Head of Franchising
Lloyds TSB Commercial
Tel: 07802 324018
Email: franchising@lloydstsb.co.uk
Web: www.lloydstsb.com/franchising
Richard heads up the bank’s team of franchise specialists and is a regular speaker at seminars and exhibitions promoting the growth of ethical franchising in the UK. Lloyds TSB Commercial are affiliate members of the British Franchise Association and have franchise managers available throughout the UK to assist prospective franchisees.
Researching ethical franchise opportunities
Finding the right franchise might sound like a breeze. But it’s a minefield – in which you’ll need to tread carefully.
The overwhelming majority of franchisees who have invested in franchise system, that have been accredited by the British Franchise Association (bfa), claim to trade profitably.
The bfa oversees ethical franchising in the UK. Franchises that have the creditability of bfa membership and who adhere to their standards naturally provide a greater chance of success for the investor.
But there is a problem. Under European law there is no legal obligation on the franchisor to provide a standard disclosure document. So how can you make sure the research you’re doing is sound? And how do you get the right information from franchisors and avoid being misled?
Perhaps the most important thing to remember is that the onus is on you, the franchisee, to do your homework.
The bfa is a self regulating and its members have to meet certain strict standards to demonstrate that their franchises are viable. It sets out a code of ethics requiring that franchises deal with their franchisees fairly – and that they should always present a full picture of the business.
As the bfa is a voluntary body it does not represent every franchise opportunity in the UK. But it is a good starting point for your research. And you can take comfort from the fact that many franchises which don’t comply with its code of ethics have either been refused entry or haven’t applied for membership, as they realise that they wouldn’t stand up to scrutiny. That said accreditation by the bfa is not a cast iron guarantee of success.
Lloyds TSB has produced a free step by step guide for prospective franchisees, which sets out 30 key questions that are an essential part of any research. This, together with a degree of common sense will help you arrive at the right decision.
Remember, if a business opportunity sounds too good to be true then it probably is. And if you are being pressurised into making a decision before you are ready then always be prepared to walk away. Any ethical franchise should give you time to reach your decision.
The franchisor should provide you with a list of existing franchisees in their network for you to speak to. This maybe a managed process, however make sure that the franchisor doesn’t ‘cherry pick’ the people that they want you to speak to. Talk to as many franchisees as possible to get a broad view of the franchise and the support the franchisor offers its network.
Investing in newer, less established franchise opportunities carries with it much greater risk to the franchisee. Some people are attracted by joining a franchise at an early stage of its development. But there are numerous examples of businesses that attempted to expand through franchising and for various reasons have not been successful, leaving a trail of disgruntled franchisees.
There are several unscrupulous franchisors and many names crop up time and time again. So, ask to speak to your bank’s franchise department about the franchise you are considering, before making a commitment to invest. Banks with dedicated franchise experts such as Lloyds TSB will be able to offer you the guidance you are looking for.
It’s also worth hiring an accountant – someone with franchising experience to review any financial illustrations the franchisor may provide. And it is essential to get the franchise legal agreement independently checked and explained to you by a bfa affiliated solicitor before signing.
I recommend that any prospective franchisee should attend one of the bfa seminars which will give you a good overview of what you should expect. Details of the programme of franchisee seminars for 2010 and booking information is available on the bfa’s website www.thebfa.org
If you follow this straight-forward advice you should be better placed to make an informed decision about the franchise opportunity you are interested in.
Richard Holden
Head of Franchising
Lloyds TSB Commercial
Tel: 07802 324018
Web: www.lloydstsb.co.uk/franchising
Guide to Franchising
Franchising – A golden opportunity or one to be avoided?
McDonalds, Starbucks and Subway have outlets all over the world. These outlets are usually franchises. Franchising can be a cost and time effective way to expand your business and open new outlets as those costs and the time involved are borne by another (the “Franchisee”). The Franchisee will pay you (the “Franchisor”) for the right to use your business knowledge, model, name and intellectual property, and by operating the franchise will grow your business
presence and reputation.
Download the full Guide to Franchising here, the pdf contains the following:
- What are your business requirements? Is franchising the solution or would an alternative arrangement be more suitable?
- Do you have something to franchise?
- Do you have the time and the resources to franchise?
- What are you going to get out of it?
- Do you have all the paperwork in place?
Guide to becoming a Franchisee
So you’ve decided that you want to become a franchisee. Taking on a franchise is a long term, time consuming and potentially expensive project. Before you sign up to a franchise it is vital that you fully evaluate the opportunity to give yourself the best chance of success.
The British Franchise Association (the BFA) holds and attends regular exhibitions throughout the year and across the country. These exhibitions provide franchisors and other agencies that may be of assistance to both franchisors and franchisees with the opportunity to showcase their business. If you haven’t already done so, go along and see what’s on offer. Not only will you get the chance to speak to a variety of franchisors in an informal environment but you may come across a franchising opportunity that you may never have thought of otherwise. You can find BFA events at www.thebfa.org.
Download the full Guide to becoming a Franchisee here
Supplied by Neil Myerson LLP
Buying a franchise start up
Get sufficient information (including accounts) before purchasing a franchise. What is the franchisor providing?
- Is the franchisor providing equipment, stock and stationery?
- Will the franchisor provide advice and assistance in locating and securing business premises?
- What initial training and assistance in launching the business is being provided.
- Is there an operations manual in existence and can you view it prior to purchase?
- Have there been any failures in the franchise network, if so how have they been dealt with?
- Research the market including location, disposable income, product and buying trends which can all affect your projections.
- Take Advice as much as possible from the British Franchise Association and professional advisers such as banks, BFA affiliated lawyers, accountants and business advisers.
- Talk to existing franchisees to gain their insider perspective on the business. Ensure the Franchisor provides you with a full list of its franchisees, so that you don’t end up just talking to those franchisees pre-selected by the franchisor.
- Consider your strengths and weaknesses and whether the franchisor provides any training and support to help you enhance or improve your skills.
- Check the franchise agreement. Is it ethical? Make sure that you obtain legal advice from a BFA affiliated legal adviser in relation to your franchise agreement before you sign it. Ensure that any promises by the Franchisor are in writing and attached to the agreement.
- Get everything in writing. If your franchisor will only discuss things in person or on the phone then send an email immediately after your conversation summarising what was discussed, in order to create a written record.
- Awareness of terms and conditions. Make sure you are fully aware of the terms and conditions you are required to use in your business and that you understand their implications and your exposure to them.
- Where possible resolve disputes informally. This is normally more cost effective than through the courts.
- Have an exit strategy. Make sure you and your franchise agreement have an exit strategy. This is usually a sale of the business. You should check:
- Which types of franchised businesses have the best resale value?
- Does the agreement deal with the situation where you die or are permanently incapacitated? Have you made proper arrangements within your will?
- Establish at the outset your long-term goals. Do you hope to eventually sell your business or pass it on to a member of the family?
Supplied by Linder Myers Solicitors
