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Key facts for would-be franchisees

Written by Sarah Cressall on Monday, 11 January 2021. Posted in Finance

Running a business isn’t for everyone and franchisors are very selective about who they empower with their brand.

Key facts for would-be franchisees

Running a business isn’t for everyone and franchisors are very selective about who they empower with their brand. Prospective franchisees must demonstrate to brand owners that they possess a number of key qualities, which include having suitable experience in a number of relevant areas. As owner of the Devon-based franchise Creation Station, I have outlined a number of points to keep in mind, if you want to become a business owner within the franchising community.

Investment 

The first thing to understand is that cost doesn’t just include the financial outlay. If you are approved to take on a franchise, there is considerable time and effort required to running a successful business. Some franchises offer a flexible approach to working, while others require fixed hours. Flexible models can sometimes be more preferable, as this enables you to decide how much time you want to invest in the model. This will allow you to choose the days and times you wish to work. 

You can employ staff if you want, but it’s not obligatory, although some businesses and models couldn’t exist without at least a handful of workers. These people can be employed directly by the franchise, or perhaps work for you on a self-employed basis, either full-time or part-time. But if you are able to run the business on your own, then this should provide you with the flexibility to tailor your days and hours around your own commitments and aspirations – and all with the support of the franchise company.

What all ambitious business folk should know?

Banks are generally happy to support those investing in a franchise, because it’s a tried and tested business model. 

This is a section of text from the Franchising Landscape Report of 2018, published by the British Franchise Association in conjunction with NatWest: "Approximately half to two-thirds of new businesses fail within the first three years of trading but, because franchisees have the benefit of a tried-and-tested business model and access to a support network, failure rates remain extremely low, with only 1% per year closing due to commercial failure."

That tells you so much about investing in a franchise. Some franchisors work hand-in-hand with financial partners where funding has already been pre-authorised. Banks often require a 30% deposit, although some start-up loan companies don’t ask for any. One example of these is Biz Britain, which offers business loans on the following terms:

• 6% APR

• No deposit required

• No personal guarantee

You are, however, required to provide a business plan which includes details about cash flow. It’s important that you have funds available as working capital. And don’t forget that the franchisor will be able to support you with developing these specific to your local region. 

Why is it called investing and not buying?

A franchise is not a regular purchase, it’s an investment. And it needs to be the right fit for both you and the franchisor alike. The money you initially invest in your business should, in theory, increase as you develop and grow your franchise. With any ethical franchise, you will receive initial training which will continue through ongoing support from central office and/or regional managers, depending on the nature of the business. You will also be granted an exclusive territory in which to operate.

In five or 10 years’ time, depending on your franchise agreement, you may be able to sell your business for a higher price than you initially paid it for. This way, you get back your initial investment, with profit, having also been paid a monthly income during the life of your business. Or you may prefer to sign another franchise agreement to run the business for a further five years or more.

It’s a bit like planting an acorn which has the potential to grow into a large oak tree. But this will only occur if the acorn receives the correct care and attention. A franchise is part of a bigger business, and is initially a single acorn surrounded by a forest of sizeable oak trees. While you are developing and growing your own franchise, the franchisor and other business partners are doing the same. 

When I started Creation Station in 2002, we provided just one type of income stream. This was our Little Explorers product and, back then, our online offering was nothing like it is today. Due to demand and investment from our Creative Hub (head office), we have since developed a further 10 revenue streams including retail. We now have a sophisticated website which caters for online bookings and supports a management system. This has streamlined all our processes and provided extra value for every franchise partner.     

Quality standards 

Ensuring customer safety, and providing a quality experience and service, is paramount for all businesses. When you invest in a franchise, you gain brand credibility from day one. Customer reviews are important to a company, so you must regularly read what customers are saying about their experiences with your franchise. At Creation Station we have over 7,000 5-Star reviews on the website Trustpilot.  

During the on-going pandemic, our safe face-to-face classes provided reassurance for new customers who could access our good reviews before making their bookings. To ensure the safety of our activities and products, we have implemented a number of health and safety checks. These extend to our dedicated warehouses which provide access to over 10,000 quality art and craft supplies for use in Creation Station activities. 

As mentioned earlier, investing in a franchise is not just financial. It requires time, effort and energy, while enjoying the benefits of a proven business model. Franchises vary in cost from a few thousand pounds, to possibly millions, depending on the type of business and territory. There may be a number of different licences to choose from within a company – each with their own rules and regulations, opportunities or restrictions. Check that the territory you wish to invest in is still available. You may have to move slightly out of area, or perhaps you may prefer this option anyway.

Some of our franchise partners have territories that cover large areas, and some have more than one licence. Franchisees are not limited to a single area and may opt to expand their business. Others operate in smaller areas, but maximise all the income streams and the cross-selling that comes with it. To learn more about the Creation Station, and understand the financial nuts and bolts of running one of our franchises, sign up for one of our discovery days.

About the Author

Sarah Cressall

Sarah Cressall

Sarah Cressall is a board member of the British Franchise Association, co-founder of the Children Activity Association, a best-selling author, multi-award winning entrepreneur, speaker, and founder and managing director of The Creation Station.

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