This is a brief outline of some of the things to look for when buying a franchise.
There are suggestions and advice but it is by no means exhaustive or complete as there is not enough space here to allow that. Buying a franchise is not an easy option when wanting to start your own business.
It takes time, effort and commitment. When you buy a franchise, you can sell goods and services that have instant name recognition, and get training and support that can help you succeed.
But purchasing a franchise is like every other investment; there’s no guarantee of success.
It is very important to understand right from the start that if you have pre-conceived ideas on how you want to run your business then you must decide if franchising is the way forward for you. You will need to run your business in the way that the franchisor has set down in their franchise manuals. If you do no think you can do this then franchise may not be for you.
A franchise enables you, the franchisee, to operate a business using a pre set system or format developed by the franchisor. The franchisor also gives the right to use the name and operating system and to call on them for assistance.
For example, the franchisor may provide you with help in finding a location for your business, initial training, an operating manual and advice on management, marketing and sales, in fact everything to do with successfully running the business.
Buying a franchise may reduce your investment risk by enabling you to associate with an established company who, in theory, will have ironed out most of the pitfalls encountered by someone starting out on their own.
In return for this, a franchise fee will be charged and in some cases may be substantial. You will also have other costs: for example, you may be required to pay for advertising, insurance and other usual costs that you will incur when starting or running a business.
In exchange for the right to use the franchisor’s name and assistance, you will pay some or all of the following fees:
- An initial franchise fee
- Training fee
- Transfer fee if buying an already established franchise outlet
- Other costs needed to launch your franchise successfully.
In most cases the franchisor will charge ongoing royalties either based on turnover or profit or a standard monthly or yearly fee that is paid no matter how well you are doing.
A lot of franchisors also charge an advertising or PR contribution. Indeed, even if you voluntarily terminate your franchisee agreement early, you may owe royalties for the remainder of your agreement. You must also find out if there are any on-going costs and what they are for.
To ensure uniformity, franchisors usually control how franchisees conduct business.
These controls may significantly restrict your ability to exercise your own business judgment. For example, site selection, signage and advertising methods, advert content and restrictions on the goods or services you can offer.
This is often a good thing but you may not agree with what you are restricted to. Your method of operation may be dictated to you as well. For example, they may dictate hours; pre-approve signs, employee uniforms, advertisements or demand that you use certain accounting or bookkeeping procedures or that you buy supplies only from an approved supplier even if you can buy similar goods elsewhere for less.
Virtually all franchises will offer you a territory in which to operate. This is to maximise the potential of that area and to stop you encroaching on the next franchisees territory. This may of course restrict you for expanding should your business do well so you must choose and check your territory well before agreeing to it.
At some point you will want to sell your franchise.
You must make sure that when you are starting out in your franchise you already know how you are going to get out of it when you want to move on. Your franchise agreement should have clauses in to let you know how this will work and what you should expect.
Before signing any contract or agreement you should have it checked over by a franchise lawyer and have them explain to you just what you are getting into.
The agreement is very important both to you and the franchisor as it sets out just what is expected from both parties.
When you buy a franchise you are essentially entering into a partnership between you and the franchisor and it is vital that everyone knows just what is expected and offered.
All agreements will have a limited time attached to them and you should know how long your agreement lasts and if you are required to buy the franchise again at the end of it or if you just have to renew it.
You should also be aware of any costs involved when this happens. Although no one can make you sign the new agreement you should make sure that it has not been changed. For example, have they raised royalty payments, methods of practice or reduced your territory. Make sure you check it again a very carefully.
Before you invest in a particular franchise system, think about how much money you have to invest, your abilities, and your goals. Be brutally honest with yourself. How much money do you have to invest, how much money can you afford to lose and how much is it possible to make? Are you purchasing the franchise alone or with partners? Where is your finance coming from?
You just look at yourself and think about what you can really do and if that particular franchise will suit you and your way of life.
- Do you have technical experience or special training or education?
- What special skill set can you bring to a business and specifically, to your business?
- What experience do you have as a business owner or manager?
Write down your reasons for buying a particular franchise:
- Do you need a specific annual income?
- Are you interested in pursuing a particular field?
- Are you interested in retail sales or performing a service?
- How many hours can you work?
- Do you intend to operate the business yourself or hire a manager?
- Will franchise ownership be your primary source of income or a supplement do your current income?
- Do you get bored easily?
- Are you in this for the long-term?
- Would you like to own several outlets?
Other things to consider when buying a franchise are competition, your ability to run the business, brand awareness, training and support and company growth.
You should consider visiting franchise exhibitions to have a look around and see who is there and what they have to offer.
The main national franchise exhibition is held annually at the NEC in Birmingham around October time. Check the franchise magazine for dates and they also often have free ticket in the as well. there are other franchise exhibitions held all around the country at other times of the year and again these can be found in the franchise and local press.
Before buying into any franchise and after attending the franchise interview, go away and do your research.
Read all the paperwork you have from the franchisor. Don’t be shy about asking for explanations, clarification, and answers to your questions before you invest.
If you feel you have found the business for you, you should seek advice from a franchise lawyer on the agreement and visit and call as many other existing franchisees in that business as you can to really get a feel for whether this is right for you.
Always stay clear of a franchisor that will not let you have all the names and numbers of their franchisees. They should have nothing to hide from you and must ask them the questions that you have been asking the franchisor.
Starting your business may take several months. Estimate your operating expenses for the first year and your personal living expenses for up to two years. Compare your estimates with what other franchisees have paid and with competing franchise systems. You may be able to get a better deal with another franchisor.
An accountant can help you evaluate this information. Your accountant will also look over your business plan to make sure you have not missed anything. The business plan is essential as this is going to be your roadmap to success. Remember “if you fail to plan, you plan to fail.”
Gary Wolf – gldw@hotmail.co.uk – Tel: 07889 307 974