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 financial and company 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. Do these checks not just for the company but also the directors.
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 and signed a confidentiality agreement.
Research the area that you will be operating your business in. There is a great deal of information available from local councils and the internet. Establish that there is a demand for the product or service that you will be providing. How is that demand being serviced now and what will you be able to offer to get into the market.
Research the product or service that you will be offering. How does it compare to competitors both in terms of quality and price. What will be your points of difference that will help you win business.
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.
One other advantage of using a experienced franchise lawyer as opposed to your local solicitor that you might use for a mortgage etc is that they will have good knowledge of how well the franchise is perceived in the market.
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 re-mortgaging 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 successful. |
