01 June 2017
Top Tips For New Franchisees
If you are thinking about entering into the world of franchising we have compiled a list of top tips detailing what you should consider before becoming a franchisee.
- Use Your Skills And Passion
Whilst a franchise comes with a how-to guide (in the form of an Operations Manual with the level of detail varying across franchises) and a certain level of training, it is not a turnkey business.
You need to make a realistic assessment of your own skills and experience. You are more likely to be successful by playing to your strengths and running a business you are passionate about. That said, you may be surprised by what franchise best suits your skill set and personality.
Approach franchising with an open mind as you may be surprised by the variety of ventures on offer that suit your skills and personality.
- Be Prepared to Face Challenges
You may not have previously owned a business and whilst you will have the support of a franchisor, when taking the leap to operate a franchise you must be prepared for the everyday challenges that any business faces.
All franchises involve an element of sales. It could be selling a product or service to a customer or the franchise “idea” to your own employees. Even if you acquire a franchise of a well-known brand, you are going to have to drum up business, acquire customers and turn that into sales.
You are likely to have to deal with staff challenges. Business owners have to deal with what can often be uncomfortable situations such as issues with staff members.
Prepare yourself for challenges that you may have not previously encountered as an employee. When making an assessment of your own skills, consider whether you are suited to the role of a business owner.
- Consider The Level of Control You Are Comfortable With
Whilst the franchise will be your business, you will be required to run that business a certain way to reflect the franchisor’s desires to protect its brand. A franchise may be heavily regulated - dictating how the business is run on a day to day basis or perhaps the look and feel of how services are delivered.
You need to decide what degree of control you are comfortable with and what control the franchise agreement provides for. Often franchise agreements cannot be negotiated upon, as the franchisor must ensure a level of consistency within its network but it is important that you are properly advised on the franchise agreement; both what your obligations are and what you can expect from the franchisor, and any usual features. At Slater and Gordon, we have a team that can assist you in your review of the franchise agreement.
If you are not comfortable with the level of control a franchisor will have, that may not be the right franchise for you, or you may even wish to explore your own start up. At Slater and Gordon, we have a team of advisors within our Business Legal Services team that can explore with you the right option.
- Budgeting And Returns
A driving factor in establishing any business is likely to be cost.
Consider the affordability of a franchise before you select it; think about what you need in order to be profitable, the capital investment that is available to you and whether the franchise provides you with a foundation on which to build a business. Have a clear idea of your budget, and what income you need to achieve before engaging in discussions with franchisors. This will enable you to determine if a franchise is viable and worth exploring from the outset.
Franchises require a significant upfront investment of capital, so you must be sure about what you can afford to spend and investigate what you can raise through external funding. Franchising is looked upon favourably by banks but you will need to have a business plan that identifies returns. If you are seeking to borrow more than £25,000, you may need to offer some form of security.
Once you have decided on a franchise you need to plan realistically for the cost. Consider whether it will be run from home or if you need to lease premises, and the cost. Research what stock will cost and the likely volume you will require as part of your initial launch and how you will fund the cost of stock during your first year. Think whether you need to immediately hire and train employees or not. These costs will all form part of your business plan.
Do your research on the sector; look for trends or regulatory changes which might impact profitability. Examine how saturated the market is, both in your intended territory and more widely.
Good business plans provide for (a) anticipated costs, (b) the period that you are not generating enough income to cover your overheads, and (c) the unexpected event or expenses. Before becoming a franchisee you need to plan for risks as well as opportunities and consider how you are going to tackle them, which often involves money.
5. Do Your Homework
Research franchising opportunities before making any commitment.
There are numerous options to locate franchise opportunities, including franchise exhibitions, websites, advertisements in magazines but nothing can replace meeting with a franchisor and members of its network.
As you are entering into a legally binding contract, and a business relationship, it is important to ask questions upfront and be comfortable that you know what you are getting yourself into. Get all your concerns answered before entering into a franchise arrangement.
Ask to meet with a spectrum of members, including those well established and those that have just entered the network– each will be able to give you a different perspective. You will also want to meet the franchisor and its support staff, who you will be interacting with on a daily basis. Make sure you feel comfortable working with the personalities at the franchisor level and those within the network to ensure the business relationship will work.
It is also worth investigating whether the franchisor belongs to the British Franchise Association (BFA), where there is a desire to ensure that franchises are run ethically and with franchisees best interests at the core. However, you should make your own assessment of whether the franchise is right for you and not rule out a franchise if it is not affiliated to the BFA, or simply go with the franchise because it is.
As a final thought, consider how long you wish to be involved in the business and what your exit plan is. Whilst you may not have this at the forefront of your mind when looking to establish a business, a good business plan will consider the potential growth and it may factor into how you intend to run the business. The ability to sell on the franchise, and its initial term, may also feature in your discussions with the franchisor.
Rebecca Young is a dispute resolution lawyer with expertise in franchise law. She works in the Slater and Gordon Manchester office.
For legal advice on franchise agreements call the Business Legal Services franchise solicitors at Slater and Gordon Lawyers on freephone 0800 916 9052 or contact us online and we will be happy to help.