In my article last month, I looked at some of the key areas you should be considering before buying a franchise, including a close look at your skills, experience and ambitions.
In this article, I want to help you to do a deeper dive into some more specific areas which will help you to identify areas of concern. Although you may be keen to get started once you have made a decision, you might still have some loose ends to tie up before taking the plunge.
Assess the franchise offer
Review the franchise package in detail. What is the upfront fee, and what does it include? Does it cover training, marketing materials, equipment, or territory rights? Equally important is understanding what is not included; will you need additional funds for premises, staff, or stock?
Be realistic about your financial position. Will you need to borrow money to get started? If so, does the franchisor have relationships with banks that support franchise lending? And what ongoing costs are involved, such as royalties or marketing contributions?
Good franchisors offer comprehensive initial training and ongoing support. Find out what this involves, how long it lasts, and how accessible it is once you’re operational.
Financials
Can you afford it? Once you are fully aware of the costs of your chosen franchise, you can have a look at whether funding is needed and how likely you are to qualify. You will always need to put a stake in yourself and the amount you have available to invest will drive what sort of franchise you can consider. Typically, the banks will finance up to 70% of the total costs including working capital for an established franchise with a strong track record or up to 50% for newer franchises.
Start with an in-depth exploration of your own personal finances, reviewing your personal outgoings and making sure you have a detailed understanding of how much you need to take out of the business to cover your living and family expenses.
If you are able to keep personal drawings low in the early months/years, this can help to build the business, but if it is going to be your only source of income, you should factor your drawings into the new business plan. Do you have any contingency funds available if sales are slow to build, or you hit any unforeseen issues?
Investigate the franchisor
The franchisor’s track record should be one of the most important aspects of your due diligence. How long has the business been operating? Was the model piloted and proven before being offered as a franchise? Financial stability is also crucial so check out the company via Companies House.
Look at online reviews and speak to existing franchisees where possible. How do they rate the training and support? Are they satisfied with their return on investment? These insights can be invaluable in assessing whether the franchisor delivers on its promises.
Review the franchise agreement
The franchise agreement is a legally binding contract which outlines the length of your commitment, your obligations, and any penalties for breach. It is essential that you have it reviewed by an experienced franchise lawyer, as generic legal advice may not always cover the key aspects of a franchise contract.
Key elements to look for include the length of the agreement term, renewal rights, exit conditions, territory protections, and obligations on both sides. This document sets the foundation of your relationship with the franchisor so make sure you fully understand it.
In summary, doing your research at the outset is the best way to start your new franchise, giving you the greatest chance of success. Don’t be put off though, franchising can be a great way to build a business of your own.
Know yourself, understand the market, and study the franchise offer. Get expert legal and financial advice. Take your time and ask the right questions. The more prepared you are, the better your chances of success.
