Franchise Advice

What is franchising?

Franchising can be described in many ways. A common explanation is a method of allowing a company (the franchisor) to grant a licence to another company (the franchisee) to distribute products and services under the franchisor’s trade name and business system.

Main benefits to a franchisee of going for a franchise

Gain from the experience and knowledge systems of the franchisor.

Benefit from an established brand name.

Franchisee will benefit & profit from his own efforts.

A person is more likely to succeed as a franchisee than if started own company.

Financing

It is recommended that you take independent advice concerning the financial investment you have decided to make. Franchises can cost anything between £7,000 and £150,000 with the average around the £40,000 mark. Remember also that there are no guarantees for success.

What business types do franchisees set themselves up as?

Sole Trader

A Sole Trader is an individual who sets up in business, on his own.  He takes full responsibility for the ownership of all company assets and liabilities.  He takes the risk of capital investment and borrowing, but also would receive the profits of the business.

Partnership

A partnership is similar to a Sole Trader.  In that two or more individuals would set up in business, sharing responsibility for the ownership of company assets and liabilities.  They would take the risk of capital investment and borrowing and benefit from the profits of the business.  The business can be set up in such a manner that the equity assets within the business are on an equal or unequal basis.

Limited Company

A limited company is set up for individuals, couples or three or more people whose desire it is to set up a business with limited liability.  The owners are theoretically sheltered from individual liability for debts.  In reality, banks and other lenders May require types of security or guarantees from the shareholders.

Finding the right franchisor

This can be   the most daunting aspect of buying a franchise.  In order that your decision is made from an informed perspective, you should try to find out as much information about franchisor in advance of purchasing the franchise.

In particular, you should check the following:

1. Avoid businesses, claiming that you will get rich quick.

2. Is the franchisor financially stable?

3. As the business been adequately pilot tested?

4. How long has the franchisor been trading?

5. Is the business sector, experiencing growth or saturation?

6. Has the franchisor’s system, something special to offer?

7. What is the level of investment?  Working capital?  Franchisor's fees, going forward?

8. What equipment will be required?

9. How will you raise the finance?  Does the franchisor have contacts with banks?

10. Study the marketing plan. Does it make sense?

11. Can you speak to other franchisees?

12. Review the franchisor's operating budget and cash flow forecast.

13. Is the franchise contract ethical, above board is the franchisor, a member of the BFA?

14. Is the franchise contract drawn up by a British Franchise Association lawyer? 

15. What ongoing support is offered by the franchisor?

16. What initial training is offered by the franchisor?

17. What advertising and promotion is offered by the franchisor?