The start of a new year is a time for resolutions and new beginnings. It is not surprising that it also often coincides with many reconsidering their career goals and turning to franchising as an option offering flexibility of work-time-family commitments and an opportunity to become your own boss and operate a profitable business. But in the excitement of making a new start, what should you look out for and how can you ensure that you protect your investment?
Costs & financials
Buying a franchise can often be a significant financial commitment. When looking at financials, ensure that you have considered not only the upfront costs but also any ongoing costs. In addition, you will need to factor in working capital and ensure that you have sufficient savings or income coming in from elsewhere to support you until the business breaks even. Don’t fall into the trap of running out of money before you have started trading!
Due diligence
How much do you know about the franchisor? How much do you know about the brand? What market research have you done in your target territory? Do you know who your competitors are? If the franchisor is an established franchisor – have you spoken to existing franchisees? If the franchisor is a new franchisor, how long has it been operating? Is the franchisor entirely new or are they new to the UK? If this is an established overseas business, has it been adapted to the UK market? Does it have a “pilot” – a test operation in the UK?
Franchise agreement
This will be the main contractual document between you and the franchisor and it creates a legally binding contract. The term of a franchise agreement is typically a fixed term, meaning that you would not have an option to bring the agreement to an end by giving notice. This fixed term is usually 5 years so it is a significant commitment. To ensure that you understand your rights and obligations under the agreement and those of the franchisor, you should obtain legal advice. Most franchise lawyers offer a fixed fee service for producing a franchise agreement review report which would explain the document to you and highlight any provisions which may be unfair, unreasonable or unworkable. Do not leave this until the last minute and ensure that you obtain the report in plenty of time so that if there are any queries arising out of the report, you can raise these with the franchisor. You might think “what’s the point of getting legal advice if the franchise agreement is non-negotiable”? Obtaining a franchise agreement review report should be part of your due diligence. Sadly, I have seen one to many franchisees who did not take legal advice and regretted it afterwards as the costs and the emotional impact of a franchise relationship breakdown can be substantial.
If you are happy with the financials, you have completed your due diligence and you have obtained legal advice – is that enough? Almost! A couple of final thoughts:
Do not expect it to be easy!
Starting a new business, including a franchised business, is hard.
Success depends on the effort that you put in!
No matter how proven and tested the franchisor’s system is, you will still need to work hard on the business for it to be successful!
And finally – trust the process!
If you follow the franchisor’s process and system, their guidance and manual, success will come. If you have new ideas or queries or concerns, speak to the franchisor – if it is a challenge, the chances are that the franchisor (or their other franchisees) may have experienced this before and might have a solution for you. If it is something new, then the franchisor should know about it so that they can help you navigate it and thus create a roadmap for future franchisees who may experience the same issue. One of the big advantages of investing in a franchise is that you are not alone and you get the support of the franchisor and the wider network.
