Are you considering becoming a franchise owner? Franchising is a tried-and-tested way of starting and running a business that has a high chance of success, but choosing the right franchise is key.
Are you considering becoming a franchise owner? Franchising is a tried-and-tested way of starting and running a business that has a high chance of success, but choosing the right franchise is key. Claire Robinson, CEO of the Approved Franchise Association, shares her top tips for choosing the right franchise in 2021.
2020 has been a year that everyone will remember as the year that literally turned the whole world upside down. With thousands losing their jobs due to the pandemic, many people, who have only ever seen themselves as employees in the past, would now prefer to have greater control of their own destiny, moving forward, by becoming business owners.
You may be one of those people and, if so, you could well be considering prospective franchises right now. With a huge range of franchises available across the UK, within so many different industries, the choice can be somewhat overwhelming. That’s why, as the CEO of the Approved Franchise Association and a franchise owner myself, I decided to share my top tips to help you make an informed choice and increase your chances of success.
Firstly, the most valuable piece of advice I can offer is to choose a business that interests and excites you – enthusiasm is crucial! Also think about your personal goals – are they purely about making money or are you looking to achieve more of a work / life balance and spend more time with family? By asking yourself these fundamental questions, you can determine whether franchising is right for you and, if so, what sort of business will help you achieve these goals.
So, without further ado, here are my top tips for choosing the ideal franchise:
Confirm the initial cost of the franchise and decide how you will finance your investment.
It’s worth spending time researching the market, to make sure your chosen franchisor is charging a fair amount, and comparing similar franchises.
You will also need to confirm exactly how much money is required to purchase the franchise, decide how much you can afford to invest and how much you will need to borrow, if relevant. Take into account the time needed to build your business (we recommend six months to a year as a general guide) and make sure you have enough money to live on and operate your business during this period.
Make sure you know what’s included in the package.
Once you have confirmed the initial franchise cost, check exactly what you’ll receive in return for your investment. For example, are training courses, marketing materials, office equipment, website and email addresses, phone numbers etc included? Cheaper isn’t always better, so makes sure you review the package benefits carefully.
Ask what level of support you will receive from the franchisor, beyond your initial training.
As you will be buying into an established brand, that relies on following a proven business model, there should be a strong support system in place to guide you through every stage of setting up and running your franchise. Check whether ongoing training is available, as well as whether there is a franchise manager in place to support you.
Confirm the monthly, management fees you will be liable to pay to the franchisor.
As well as your initial investment, you will need to pay monthly, management fees to the franchisor and these vary greatly, not only by amount but also whether they are charged as a flat fee or a percentage of your income.
Determine how long it will realistically take you to build your franchise.
Ask whether any financial information is available that outlines the costs involved with running the franchise, as this will provide you with an indication of how long it will take to break even and start earning a profit. Also, ask the franchisor whether the figures contained within it are based on actual figures or predictions.
Talk to existing franchisees.
Existing franchisees will be your most useful source of information and most franchisors will be happy for you to speak to them at the right time.
It is useful to speak to both those who are successful and those who aren’t doing as well, which is usually down to personal circumstances if it is a viable franchise. However, if you notice a pattern and franchisees are giving you the same reason for poor performance, this will alert you to the fact that there may be a problem.
Remember to ask them about their relationships with the franchisor; whether they have had any problems and how the franchisor helped resolve them. Do they have regular contact with the franchisor? Does the franchisor welcome feedback and ideas and how much marketing support do they provide?
Confirm how your territory is allocated.
Look at the demographics of your proposed territory and ask whether you have a say in the mapping in order to determine the true size of your target market. Most importantly, it is vital to understand the size of the opportunity within the territory you will be allocated and how this has been researched. For example, if you’re opening a restaurant, how many potential customers live in that area and is there sufficient footfall and parking?
The size of the territory is also important and bigger isn’t always better. Covering an oversized area may mean you won’t be able to respond to the demand effectively. However, a smaller territory could enable you to grow your business sensibly, target your customers more effectively and therefore deliver greater returns.
Carefully review the franchise agreement.
It’s always a good idea to ask a franchise solicitor to check the terms of your franchise agreement before signing anything. The agreement is usually written in favour of the franchisor, which is to be expected. However, it should be well-balanced in terms of obligations, duties and the rights of both parties and clearly state the rules to be observed during the life of the agreement.
It should also be clear how long the agreement is valid for; whether further investment will be required at any time; what happens if you ever want to sell your franchise; what the renewal terms are and the grounds upon which the franchisor could seek to terminate the agreement.
Check whether the franchisor is a member of a franchise association.
Membership of a franchise organisation, such as the Approved Franchise Association, will provide you with added peace of mind, as we are here to promote best practice within the UK franchising sector.
Franchisors undergo rigorous checks, before they are accepted as members, and membership is only granted following an in-depth examination of the franchise model and the business’s performance. We also ensure the franchise is structured and operates in accordance with the European Code of Ethics for Franchising. Although there can be no guarantees in business, if your chosen franchisor is a member, you can be assured that their business model has been thoroughly evaluated.
Take the time to think things over properly.
A good franchisor will want you to make an informed business decision. Take the time to review the information you have gathered and decide whether franchising and, indeed, your chosen franchise is right for you. It is always a good idea to seek legal advice and perform your due diligence before signing any agreement and lastly, if it feels right then go for it. It’s not always going to be plain sailing but if you have the passion, enthusiasm and motivation to succeed, you’re off to the very best start!