The reasons people join a franchise are varied. For many it’s because they have a strong desire to be their own boss, rather than making money for someone else. Sometimes it’s the result of some external action, be it redundancy, lack of progress at work, or taking early retirement.
Making the decision to want to run your own business is one thing – finding out which franchise to buy is another.
Often the thought of becoming a business owner means many people rush headlong –like lemmings- into making instantaneous decisions without considering the consequences.
Often though, people do not have a plan, and yet outside of getting married and buying your first house, buying a franchise is one of the biggest and boldest decisions that you are going to make in your life – so you need a plan. You need your franchise sat nav!
You need to know where to start, who to go to for advice, how to compare different franchises and what questions to ask.
With over 900 business format franchises in the UK, how do you select the right franchise?
Well, we hope the following six step process will help you through the process.
Step 1 – Initial Assessment
A good franchise needs to have at least the following:
- A proven business history
- Documented systems
- Effective training programme
- Security of tenure
- Ongoing support structure
- Membership of the British Franchise Association (bfa)
Do some initial research online about the franchise that is of interest to you – look at their web site:
Do they come across as professional? Have they been in business for several years? Have they been able to develop a strong franchise network? Does it look like they provide a high level of support? Are they in a large and growing market?
Can you see yourself operating in this market and working with this franchisor?
This ‘top line’ research is your first filter and will help you to remove those franchises that are obviously unsuitable for you.
When you meet the franchisors, you can then spend the time delving more specifically into support, training, number of income streams, business planning and any other aspects of the franchise you want to explore.
This initial assessment (research) will enable you to narrow down the franchise field to only those that appeal – allowing you to then move seamlessly to Step 2.
Step 2 – Investment Cost
This is critical and necessarily comes very early in the process.
Warning: A franchise is not a job, it’s an investment.
However, it is an investment that needs to be carefully planned and carefully calculated.
You must not over invest – no matter how ‘appropriate’ or appealing the proposition.
No matter how exciting the business, you should only invest what you can afford! Don’t get carried away by the excitement and overcommit financially—trust me, if you overinvest at the start, you will suffer in the future.
You need to work out exactly how much you need to invest and most importantly how much you can invest.
There is no point taking on a business that will only generate half of what you need.
Don’t over-extend yourself – be sure you can raise the requisite funding and make the repayments through the business.
It is amazing just how much money people do find squirreled away, be it in investments, shares, Individual Savings Accounts (ISAs), cash, assets including your house, car and of course, family!
Plus of course the major banks see franchising as a very safe lending option and will generally lend up to 70% of the total cost of a good and an established franchise.
In addition, there is the government-backed start-up loans scheme which the government created to encourage people to become business owners.
So, there is money available from all quarters – what you need to do is work out what your maximum investment level is going to be.
By going through Step 2 you will have removed another set of franchises – those that didn’t meet your investment level.
Step 3 – Evaluating the Market
This stage is all about asking questions – and these 10 will serve you well:
- Is the market robust? i.e. not subject to seasonality or fashion.
- Can you see the market getting stronger?
- Can demand be sustained?
- Is the market fragmented? I like fragmented markets.
- Is the industry growing or declining?
- Is there a lot of competition?
- Are the competitors aggressive or passive?
- Are there multiple income streams available?
- Can you see new business opportunities?
- Do other industries have products and services that could compete?
You are looking for markets that are large, robust and accessible.
By the end of step 3 you will have narrowed your options down to a handful of franchises that meet the criteria you are looking for, specifically proven history, good systems, effective training and bfa membership. They are businesses you think you may be interested in and have some or most of the skills required; the investment required is within your compass; and the industry meets your specification in that it’s large, growing and sustainable.
Step 4 – Comparing Franchisors
You’re now down to two or three franchises, so step four is all about evaluating the pros and cons of each.
Use the bfa, Companies House, magazines and franchise web sites to do further desk research – basic trading information and ‘cosmetic’ information about each franchise –how they promote themselves, who they are looking for and how they position their brand.
Then go armed with questions for the franchisor which specifically go to the heart of their business – market size, competition, level of repeat business, scalability, level of support and anything else that’s important to you and your own preferences.
Never attend a meeting without questions – you won’t impress the franchisor!
Ask to speak to a selection of franchisees. If the franchisor refuses, walk away – this is a huge danger signal. Good franchisors will insist you meet existing franchisees for two reasons:
- Only franchisees can really tell you about running the franchise from personal experience.
- The franchisees will feed back their impression of you to the franchisor to help the franchisor in their own decision making about your suitability.
When you meet the franchisees dig deep into their business – ask specifically about their relationship with the franchisor, the support they get, how their business is trading, and how long it took for them to get to break-even point.
AND the most important question – Are they happy?
Step 4 should have brought you to your final decision. It may be one of two franchises or even one of one! The next step is to get some expert input.
Step 5 – Professional Advice
You’ve done loads of research and you’ve put in a lot of hard work – now you need ‘professional’ input into the decision-making process.
You need people who will help you to understand the ‘small print’.
Banks will help you to sort funding
A franchise lawyer needs to take a look at the Franchise Agreement
An accountant can work with you to draw up a business plan
Step 5 is what I call the ‘nervous step’ because you are dependent on other people and their advice and experience – but franchising in the UK is well established; there are many good advisors in the marketplace and most banks have specialist franchise management.
These five steps have brought you to your final destination on your route plan.
Step 6 – Making a Decision!
Ask yourselves 10 final questions:
- Do your strengths and weaknesses match the success criteria? Y/N
- Can you really afford the business? Y/N
- Is it a good investment? Y/N
- Will the ongoing rewards meet your expectations? Y/N
- Is there potential for expansion? Y/N
- Can you take the pressure? Y/N
- Are you confident in the franchise company? Y/N
- Are you going to enjoy yourself? Y/N
- Are you prepared to work very hard to achieve success? Y/N
- Will you follow the franchisor’s system? Y/N
If you have methodically gone through all five steps and answered these 10 questions ‘YES’ then you are ready to become a franchise owner.