Well 2020 has certainly been a very different year to any of the previous 55 I have been around for. It started off so positively with franchising having had an excellent 2019 and a significant amount of new business to complete on over the early months. Indeed the first 3 months of 2020 saw many transactions complete and new franchisees start to trade.
Then, as we all know, Boris Johnson announced a lockdown from 24th March and the UK changed overnight and recently it was confirmed we are now in a recession. I had a birthday shortly after that date, which was novel at the time but became the norm for so many of us. Of course all businesses had to adapt to the situation, though some remain unable to trade or near to because of the type of business they are. On the other hand some businesses have managed to adapt and trade at similar levels or better, particularly those in the takeaway sector, such as pizza delivery.
The various measures that have been put in place from the Government furlough scheme to the banks providing loan repayment holidays, CBILS & BBLS has helped support a number of franchise businesses through the period they were locked down. Added to that the support put in by franchisors, such as royalty holidays, negotiating rent payments with landlords, etc. has placed many in a sound position to emerge from the pandemic positively. It is no surprise that many networks feel closer because of the increased communication in general and specific support where required. More recently the Eat out to help out scheme has helped boost trade in those areas, indeed I have taken advantage of it myself a few times.
Zoom, Microsoft Teams and Goto Meetings are just some of the apps that have become commonplace, as have the phrases ‘I think you are on mute’ and ‘sorry the dog is barking’ or something similar. The suit is now gathering dust too for me as face to face meetings have been curtailed. Working from home has become the standard for many people, including myself and businesses that have relied on face to face have had to adapt accordingly by using these apps.
With many people being at home for long periods and not in control of their own career it has led to an increase in franchise interest. A significant number of franchisors are seeing an increase in applications, etc. Again though interviews initially took place via an app and only in time have they met face to face – on occasion after signing the agreement. It therefore seems appropriate to advise would be franchisees to take care and ensure they undertake the right levels of due diligence on the franchisor they are examining. For example ensure you check out their reputation with existing franchisees, check their financial standing and whether the bank would support any finance you need. At some point you will need to pay a visit to the franchisor head office.
There is also the documentation to consider. Firstly the franchise agreement – ensure you get a franchise lawyer to review it for you, which is more important than ever to ensure pandemic clauses are covered. Whilst it is unlikely to change they will be able to explain what each clause means and you need to know the implications for you and the business. If you are looking at a premise based business you should ensure it covers what happens in the case of business interruption, such as another pandemic, as this has been inconsistent over the last few months from landlords happy to defer or waive payments for a period to others that still expect payment. I have heard that a turnover percentage rent is becoming more commonplace and coincidentally ties in nicely with the way most franchisors earn their income from you.
Understandably, NatWest and other banks have had to concentrate on supporting our existing customers, as they are already in business but we are now starting to turn our attention to new business and, because times are unprecedented, there may be further questions and information required from you and your selected franchisor that have not been asked previously. However in most cases and especially where there is a good track record for the franchise we will continue to lend up to 70% of the set up costs for an established franchise, though a new concept may well be nearer to 50%. This is of course subject to an assessment of the plan and individual, as has always been the case but what impact has the pandemic had on the network is important too, together with an eye on any repeat over the next few months or years.
So that moves on nicely to the plan and what needs to be included. Many businesses do not think about the non-financials in a plan and concentrate on just the numbers. The numbers are important but just as important is the individual’s experience, details of the location, how you will market the business, who the competition is and how will you compare and compete with them. Will you compete on price or service or a combination of the two. In terms of the projections there should be a profit & loss, a separate cashflow and ideally a balance sheet for each year. Most franchisors use a template for the numbers and non financials but if not you should take advice from an accountant – after all you will need one in the longer term anyway to assist with your returns. You should be able to articulate how the numbers have been achieved e.g. X number of customers on average paying £Y.
Finally take care in all that you do, whether that be social distancing or choosing the right franchise, as in either case making the wrong choice could have severe consequences.
Enjoy the rest of your summer and do get in touch if you need any more information on what NatWest can do to help.
