Minimising risk

For those keen to enter the world of franchising, Nigel Toplis offers 10 tips on how best to evaluate franchise businesses.

Minimising risk

For those keen to enter the world of franchising, Nigel Toplis offers 10 tips on how best to evaluate franchise businesses.

In theory, franchising is the perfect business ‘partnership.’ And when it comes to success rate, statistics proves that franchising is a far better option than starting a new independent company. Franchising offers substantial benefits to all involved and caters for individuals who want to work for themselves.   

With a franchise company, the franchisor offers their experience and know-how to each and every one of his or her business partners. They provide tried and tested operational methods, marketing tools, sales training, technical guidance, as well as a corporate identity. In short, new franchisees are purchasing a well-known and respected brand.

Thanks to the extensive support structure available, new business partners often come from a wide range of backgrounds, and with a vast array of different experiences. Running a franchise is conducive for those who possess a variety of transferable skills. These can include project management, marketing, operations and sales. The role of the franchisor is to fill in the gaps and to boost his franchisees’ skill sets.

Franchising combines the skills, work ethic and ambition of the franchisee, with the system, tools and structure of the franchisor. It is an industry worth over £17 billion and employs more people than the combined UK armed forces.

And while death and taxes are the only two things in life that’s guaranteed, research indicates that joining the franchise industry is significantly less risky than having an individual start-up business. That said, failures in franchising do exist and there are always risks involved when starting a business.

To this end, my advice for all prospective franchisees is to do their homework, don’t rush, don’t under invest and choose something you are interested in. Ensure you can afford the franchise and don’t over borrow.

Research the industry: Is it big enough? Is it still growing? And does it appear to have longevity? Make certain you can ‘see yourself’ in the business. A franchise is not a job. You can’t simply down tools at 5:00 pm every day. You will be responsible for every aspect of the business.

For those who believe they have selected the ideal franchise for themselves, here are 10 steps for you to undertake. These tips will help you to evaluate the franchisor and their business more closely. They are in no particular order of importance.

1: Are they members of the British Franchise Association (BFA)? If so, they will have undergone rigorous checks.

2: How long has the business been operational? Longevity is a good sign of stability

3: 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.

4: Do they employ real ‘hands-on’ people and not just offer support via the telephone or provide an online ‘chit-chat’ service?

5: I fully support businesses that have ‘multiple income streams’. Does the franchise you are researching offer more than one method of generating revenue?

6: How does the franchisor make their money? Is it via on-going royalties, based on performance? This system means the franchisor benefits by helping franchisees to grow their businesses. If, on the other hand, they get most of their income from simply recruiting and ‘churning out’ franchisees, then you might want to think again.

7: Does the franchisor have a reputation for investing in the system and updating it? Do they introduce new products and/or services on a regular basis? Think of your agreement with the franchisor as a ‘lease’. With a ‘lease’, you would expect regular updates, as products, services and systems continue to evolve.

8: Ask the franchisor for access to their most recent three years of accounts. This will enable you to check their financial stability.

9: Read the ‘operations manual’ to evaluate the strength and breadth of system support. The franchisor will not let you take the manual off-site, so you will have to do this at head office.

10: Always ask to speak to a selection of existing franchisees.

Hopefully, these 10 tips will assist you in your process of evaluating your chosen franchise.

Nigel Toplis
Nigel Toplis