By Tom Endean from the British Franchise Association (bfa), the voluntary self regulating governing body for franchising
Owning a franchise business under an established brand offers the experience, credibility, support network and structure of a proven business. This helps to overcome the uncertainties and difficulties commonly faced at the start-up stage.
It is not difficult to see why franchising is growing worldwide; new businesses based on franchise concepts are much more likely to succeed than other new business ventures. The facts make it clear. According to the latest NatWest and British Franchise Association survey, 88 per cent of all franchisees, including new start-ups, were trading profitably in 2009, contributing £11.8 billion to the country’s GDP. 2009 was also a year of expansion for many franchises, with the total number of franchise systems reaching 842 and the total number of franchisees growing from 34,600 to 34,800.
A franchise business has a proven business model, which is transferable and can be taught. This is then supported by the franchisor and training provided. As a franchisee you also own the business and so can eventually realise your capital investment by selling the business.
What to look for in a franchise
Having decided that franchising is an interesting prospect, the next key step is to find the right business. While websites such as www.thebfa.org and www.franchiseinfo.co.uk can provide many options and sources of information, meeting franchisors and existing franchisees face-to-face is also vital to gain a clear insight into a business and the reality of being a franchisee.
A visit to a bfa accredited franchise exhibition such as The British & International Franchise Exhibition at Olympia, London on 18 & 19 March is a good way to research this. It allows you to meet owners and franchisees from a choice of more than 120 businesses gathered together under one roof. There are also experts to answer questions and seminars covering all aspects of franchising.
Once you have started to identify a list of options, you have to work out how to make the right choice for you. First you must do your homework to see if you are right for the particular business and the business is right for you. You need to be aware of all that is involved and how you can identify which businesses may best suit your needs.
You should check if the company is a member of the bfa: The bfa accredits franchisors using a stringent set of criteria based on a code of business practice and the European Code of Ethics for Franchising.
The initial investment required can be a decisive factor. They start at a low level, sums that you may already have available, and go up to higher amounts for which you may need to take out a bank loan. Make sure you understand what costs are involved, both upfront and ongoing. One of the advantages of choosing to set up on your own as a part of a franchised business is that you are more likely to gain finance for a franchise in the first place as banks recognise the higher likelihood of success and are therefore more supportive.
Does the development and the operation of the business suit your lifestyle? It is likely to be very demanding, especially in the early years. Make sure that you are happy with the commitment needed for this new business. Speak to existing franchisees through the franchisor or bfa accredited exhibitions to find out about the day to day realities of running a franchise: ask for an extensive list of franchisees to choose from so that you can speak to both those that are successful and the less successful, to obtain a more rounded view of what is involved.
Before finalising a decision you should seek professional advice. There is a host of professional advisors accredited by the bfa that specialise in franchising, including consultants, accountants, solicitors, banks and even media. They are invaluable in making sure that you’re taking the right steps and don’t miss any vital information. When it comes to reviewing the franchise agreement make sure you go to a solicitor with extensive experience of franchise contracts — it can save you a lot of money in the long run.
The importance of business plans and how to obtain funding
A well-structured and prepared business plan is essential not only for the running of the business but also to show the bank when discussing finance.
Although, with any new business, there are several options for gaining finance, the major banks are very supportive of good franchising, especially Lloyds TSB, RBS/NatWest and HSBC, who all have specialist franchise departments. However, before thinking about approaching a bank, you need to build a comprehensive business plan to allow the bank to judge the viability of the business.
Many well-established franchisors may be able to help considerably with this, providing advice on many aspects of the business and possibly providing a template to get started. You need to be able to realistically demonstrate the potential market, which you believe is there and project the finance that you aim to generate.
There will be a good chance to gain free advice at the Business Plan Clinic, sponsored by Lloyds TSB Commercial at The British & International Franchise Exhibition. The UK’s leading international franchise event has many valuable and informative free seminars, an extensive conference, plus advice from keynote speakers and experts. Together, these elements provide visitors with an indispensable and thorough introduction to the world of franchising.
To sum up: setting up a new business and making it a success is a tough and demanding challenge for anyone. Choosing to start up as part of a proven franchised business helps significantly in overcoming the challenge and making success more likely.
To register for The British & International Franchise Exhibition, call +44 (0)844 257 8668 or visit www.franchiseinfo.co.uk. Callers can purchase tickets by credit card for £8 each or £7 each for two or more. Admission on the door is £13.