Purchase in haste, repent at your leisure

This is the warning from Nigel Toplis who advises all would-be franchisees to do their homework ‘thoroughly’ before buying into a business

Purchase in haste, repent at your leisure

I’ve written in my Elite Franchise column many times, that research clearly shows that joining a franchise network is significantly less risky than going it alone as a new start-up business. That said, it is still vital for you to do in-depth research before purchasing a franchise territory.

By doing your homework ‘thoroughly’, you certainly minimise risk but nothing in business is infallible. Franchising failures do exist. And my advice for anyone looking to start a business is this: ‘Don’t rush, don’t under invest and – for goodness’ sake – choose something you are interested in’.

Among this research, which needs to be undertaken, is this: How big is the sector in which the brand belongs? Is it growing, does it have longevity, and are there any gaps in the market? Always make certain you can afford to purchase a franchise territory – don’t over borrow.

Never forget that a franchise is not a job. You simply can’t walk away at 5:00pm. You are responsible for every aspect of the business. But having discussed some of the realities of joining a franchise network, let me talk about the positives. And there are plenty of them.

Franchising is, theoretically, the perfect business ‘partnership’. It offers substantial benefits for being part of a team but also allows individuals to work for themselves.

For all newly recruited business partners, the franchisor offers many benefits. These include: experience, know-how, proven operational methods, marketing tools, sales training, technical guidance, as well as a corporate identity. Trademarks and that all-important brand name cannot be underestimated either.

Because there is an extensive support structure already in place; franchisees joining a network do not need to possess a wealth of specific industry knowledge. A generic spread of skills is often more important.

That is why franchisees within the same network can have a wide range of backgrounds regarding previous experience. Running a franchise is conducive to a variety of transferable skills, such as project management, marketing, operations and sales.

The franchisor’s head office team exists to help those who lack knowledge and skills in certain areas. What does remain important, however, is for a franchisee to have a strong work ethic and ambition. Franchising, in the UK, is an industry worth over £17bn, and employs more people than the combined armed forces.

But before making that life-changing decision to purchase a franchise territory, consider the following points. These will help you to evaluate the current state of the business you are hoping to be part of:

  • Does the franchisor have a reputation for investing in the system, as well as updating the system, and/or for introducing new products/services?
  • Think of a franchise agreement as a ‘lease’. With any lease you expect regular updates about the product, services and the system;
  • Before buying into a network, ask the franchisor to allow you to inspect the brand’s most recent three years of accounts. It is important to check the financial stability of the franchise;
  • Read the operations manual while in the building. The franchisor is unlikely to let you take it off-site;
  • Ask to speak to a selection of existing franchisees;
  • I’m a big supporter of businesses that have ‘multiple income streams’. Does the business offer more than one way of generating revenue?
  • How does the franchisor make their money? I believe it is always better if the franchisor makes money from on-going royalties, based on franchisee performance. This method means the franchisor remains active at all times, helping their business partners to continually grow. But if they get most of their income by simply recruiting, and ‘churning out’ new franchisees, then this might make you think again.
  • Is the brand/franchisor a member of the British Franchise Association (BFA)? If so, this is a good sign, as they will have had to satisfy rigorous checks;
  • How long has the franchise been in business for? Longevity is another good sign of stability;
  • What level of support does the franchisor offer? Do they cover sales, marketing, finance, business planning, procurement and operations? These are all key aspects of any business.
Nigel Toplis
Nigel Toplis