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Buying a franchise

Buying a Franchise

 

Buying into a franchise is something to be considered carefully. There are many advantages, but there are also disadvantages. Here are a few starting points to better understand what’s involved in franchising and key steps to take.

 

The good stuff

 

A franchisee is the term for a person who runs the individual operation (rather than the wider system/brand owner, known as the franchisor). As a franchisee you are operating a business that has already been tried and tested. It comes with all the necessary training to teach you how to run it properly. It has various initial and ongoing support. And you may also be part of a big enough brand to be recognised from day one.

 

You will discover that franchising is now a widely adopted business model and holds opportunities across a huge variety of businesses: from pet food to coffee shops and from accountants to letting agents – and of course fast food. This opens up a huge list of options for various skills, interests and budgets. And because you get trained, you don’t even need to have worked in that industry before.

 

The result

 

Franchise businesses are several times more likely to succeed that their non-franchise counterparts. All you have to do is check out the latest statistics from the British Franchise Association (bfa) and you will see this is a model that’s weathered the economic storm of recent years incredibly well.

 

These success rates have nice knock-on effects too, especially when it comes to getting finance. An established franchise accredited by the bfa will attract much easier start-up finance from banks. This is simply because there is a lower risk.

 

So you’re sold right? It’s a proven business, you’re taught how to run it, you’re supported, it’s easier to get funding, it’s more secure, and there’s a lot to choose from. So, what’s the catch?

 

The downside

 

Franchising is no guarantee. You still have to work hard and you have to follow the proven system. It may sound odd to want to deviate from a system already proven, but some of us are good at following systems and some of aren’t. If you like to beat your own path, this may not be the route for you. There will be a number of elements you have to agree to and breaking those may end up being very expensive.

 

You will find some franchise businesses are also much more equal than others. Luckily there are strong industry standards and ethics in place, but the company has to voluntarily put themselves forward to be judged by them. This means there are some companies who have chosen not to be judged - or failed. It can be for many reasons, but proceed with care. The bfa is the guardian of the standards and lists all the companies that comply on their website (www.thebfa.org). Make sure you check to see if the franchise you are considering is listed.

 

Cost is also something to consider. All of this development and support hasn’t been created without investment. You may see a significant upfront fee. However, if this is a good franchise, you should be able to see how this cost is broken down: how much is training, equipment, vehicles, stock, etc and how much is actually a fee to use the brand. Any member of the bfa has to ensure these figures are justified and reasonable. Start-up costs for a franchise can range from anything under £10,000 to over £1,000,000. It all depends on what you’re looking at – just make sure you’re comfortable with it.

 

Some basic steps

 

So here are your five steps for franchising

 

  1. Membership of bfa: If they are a member of the bfa they have been independently checked across various criteria, such as finances, support and fees.
  2. Research: know what types of businesses are out there. Read magazines and websites, visit exhibitions and attend open days. Get lots of information and decide if franchising is really for you.
  3. Finance: Some banks are accredited (and listed) by the bfa as they have specialist franchise departments. Go and speak with them to see how much you can raise in finance. These department also have helpful advice.
  4. Legal: Every franchise comes with a Franchise Agreement. Don’t sign anything until you get this checked by a proper franchise legal advisor. Again the bfa list all the accredited professionals. This will make sure you are signing up to a proper franchise and you fully understand your liabilities and responsibilities.
  5. Speak with franchisees: There is nothing like real life experience. Go and speak with franchisees of the network. Any good franchise will provide you with a list.

 

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