What should you look for in a potential franchise opportunity?
Tom Endean, of the British Franchise Association, offers his advice for prospective franchisees
If you’re keen to run your own business but haven’t found the right business idea yet, then franchising could be for you. With a franchise you’re buying into a business model and formula that’s already been proven elsewhere, which can make it a less risky option than starting from scratch. It can also be easier to raise finance for the venture.
However, as with everything in life there are downsides, while franchise opportunities can also vary wildly. Before you become a franchisee, you need to thoroughly assess the opportunities on offer to ensure you’ll be getting a good deal. Tom Endean of the British Franchising Association (BFA) offer some pointers on what to look for in a potential franchisor and how to assess a prospective franchise, to help you to recognise a good opportunity when you see one.
What is the BFA?
The British Franchising Association (BFA) started in 1977, because franchising was really starting to take off and make a name for itself, but a number of companies were starting to use the franchising name when they weren’t proper franchises, and a large number weren’t doing things in the right way. Those genuine, ethical companies decided to create an organisation built on standards and ethics. Standards remain central to our mission today: we set standards for UK franchising, and apply those to our members. We’ve got standards for both franchisors and professional affiliates and advisors – solicitors, accountants, even the media, who have to work to specific benchmarks in terms of providing advice and expert opinion within franchising. We also strive to be the ‘voice of franchising’ in this country. We are contacted by the media, government and academics; if they are looking for the official opinion of the industry, and advice, we can offer this. And we’re an education tool – we are there to help businesses looking to franchise themselves, and get them on the right path to do it properly so they can put themselves among the good operators.
Are there examples of bad practice in British franchising?
No, bad practice isn’t rife, although you still see many companies saying they are franchises when they’re not. A number of different business opportunities are totally distinct from franchising, so it can be difficult to get this right.
Advice for franchisors or people looking to franchise a business
If someone is coming to us looking to franchise, we advise them not to cut corners. People often say franchising is a simpler, quicker model than conventional businesses, but it only works properly if you’ve put the right structures in place. You’ve got to put the right staff in place, the right advertising, the right legal structure, the right manuals. Do it properly or don’t bother. For people in the early days of franchising, you have to make sure the excitement doesn’t get the best of you. Remember that you’re handing the franchisee your brand, so you have to try and be objective about the person you’re taking on. Are they right for your business? Are they going to advance the brand and your business? Make sure you’re certain before you commit.
Advice for franchisees: what to look for in a franchise opportunity
We advise prospective franchisees on the questions to ask to help root out ‘dodgy franchises’. You’re going to be trading under a common brand, and if the franchisor hasn’t been stringent on who they’ve taken on in the past, that could hurt you. So it’s important they are happy for you to speak to other franchisees – even allow you to speak to one that’s struggling. Most good franchisors don’t hide from the realities of what a franchise is. We also advise prospective franchisees to look at how people market themselves in adverts – for example, making a clear distinction between turnover and net profit – and the number of franchises a company is looking to recruit. If they don’t have the structure and resources to support the number of franchisees they wish to take on, an individual company may not get the support they need. Ask the prospective franchisor what training they can offer, what sort of qualities they look for in their franchisees, and what sort of success rate they have seen across their franchisee network. If the franchisor looks like they’ll just take anyone on as a franchisee, and don’t have proper training in place, you should probably look elsewhere; also, if some franchisees are struggling, it’s important to find out why.
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Likewise, make sure you factor in not only at the initial cost of the franchise, but the ongoing management services fee and how this is structured. This is usually a percentage of turnover and this is the approach that the bfa advocates; in other words, the franchisor should be making money when the franchisee does. If the franchisor is making all their money from the inital sale of the franchise, then there’s no incentive for them to offer support and help to boost their franchisees’ sales.
So you’d always advise prospective franchisees to approach an opportunity with caution…
Absolutely. You need to understand this is a business, and it’s a commitment, both in terms of time and money. Are your family able to support you? Look at the finance – how much can you afford to put into it? What do you then need to get out of it? What are the bills you need to cover? What are the overheads? Most businesses aren’t going to be turning a profit on day one, so you need working capital. You need to have the right financial foundation in place before you go into this.
And what initiatives is the BFA rolling out over the forthcoming period?
We’ve got a few different initiatives. A few years ago we launched something called One Vision, looking at two key areas – increasing the number of professional advisers on our board, from one to three, and modifying our standards. Rather than using a single standard for affiliates, we’re developing different standards to focus on specific disciplines, and the next few months will see further expansion in this area. We’ve also looked at franchisee engagement. For a long time we’ve represented the franchisors, and then the professional advisers, but franchisees have traditionally been represented through our franchisor members. However over the last year we’ve appointed two franchisees to the board, and we’ve created a national register of franchisees. Next year we’ll actually be launching the first membership for franchisees, allowing them to join as members in their own right, with a vote, access to the governance and the possibility of places on the board and committees.