The Buying
Process
It
is important to understand the process of becoming a franchisee
as this will hopefully avoid some of the confusion and misconceptions.
The
First Steps
The process obviously starts with you making a decision to examine
the franchising route. Just as you examine what franchises are
available you should also examine yourself. Consider whether
you have the drive and ambition to succeed and how your family
will react to you working for yourself and the probability of
tight cash flow etc in the first few years. There is a suggested
list of questions elsewhere on the site. It is an important
part of the process and should not be taken lightly.
When
examining the opportunities keep an open mind. Make sure that
you fully understand the role that you would fulfil as a franchisee.
When
you have found the type of business area that interests you,
obtain the information on all the franchises that operate in
that area, this can be an excellent way of building background
information and providing comparisons.
Research
Before your initial interview with the franchisor it is a good
idea to start your research, particularly if it's a new business
area to you. At this stage try and establish whether the company
is well known in it's market. Talk to companies that operate
in your area. How many of them are there? Do they seem to busy?
etc etc.
The
Initial Meeting
Just as you will want to ask lots of questions of the Franchisor
be prepared to answer questions about yourself, your family
set up, your motivation, whether your family are supportive,
whether you can be relied on to represent the brand and follow
the franchise system.
It's
not unusual for the franchisor to ask your wife, husband or
partner to attend the meeting, it's important that the whole
family are part of the decision process.
Our
right questions section covers
in detail some of the main questions that you need answers to.
Research
At this stage further research is needed. This should take the
form of checking information at Companies house if it's a limited
company, Credit checks can be also be worthwhile especially
if the franchise that you are considering does not have a particularly
well known brand. At this stage you should talk to existing
franchisees. The franchisor should be prepared to provide names
and telephone numbers although this may not be forthcoming until
you have paid a refundable deposit.
You
should also continue your research into the industry that you
will be buying a franchise in and also the demand for the service
or product that you will be providing in your own area.
Professional
Advice
There are two distinct areas where you should employ professionals.
Financial
- The franchisor will
provide an indication of what it is possible to earn as a franchisee.
However this is not a guarantee and it is your responsibility
to satisfy yourself that the figures and cash flow are achievable.
Appoint an Accountant to work through the figures and tax implications
of setting up your business with you. It is money well spent.
Legal
- When
you purchase a franchise you will need to sign a franchise contract
and possibly be party to other legal documents such as leases
etc. The franchise contract is an important document setting
out your obligations and the obligations of the franchisor.
It is your legal agreement with the Franchisor and must not
be taken lightly.
Most
contracts are fairly standard, however it is important that
you ensure that you understand it and any conditions. Appoint
a lawyer that understands franchising, we can provide a list.
The lawyer will help you to understand the document and highlight
any points that you need clarification. Do not expect the franchisor
to change the contract for you.
Raising
The Finance
Should you need to raise funds to purchase the franchise and
to finance cash flow your first step will almost certainly be
to talk to your bank. The banks have experienced franchise departments
and will hold significant data on the performance of existing
franchisees. They will normally lend between 50% and 70% of
the start up and cash flow costs. The banks will normally require
the security of a second charge on your property.
You
should also consider other methods of raising the finance such
as remortgaging your home. This has the advantage of lower payments
over a longer period and will reduce pressures that shorter
term borrowing can bring. Some people prefer to not borrow against
property but as the banks normally require a second charge there
is little difference.
Consult
a financial advisor who will be able to help you take an overall
look at your finances and the options that are available to
you.
In
Conclusion
Start with an open mind and take your time. At all stages do
the research and take professional advice. Franchising is a
great way of entering the business market but it requires your
full commitment and willingness to follow the system if you
are to be succesful.
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