30 key questions about franchising

Common sense will take you a long way in deciding whether the franchise you are considering will prove right for you. We’ve prepared the following questions to help you evaluate a franchise before deciding whether to invest. Please bear in mind that this list is for your guidance only and it is not exhaustive. You’ll still need to rely on your own judgement before investing in a particular franchise.

The franchise

1. How long have you been franchising? – Think about their track record and the director's background

2. What professional support have you had in developing your franchise? – Have they used bfa affiliated consultants and lawyers?

3. What is your financial strength? – Ask for last 3 years financial accounts. What capital have they invested and is the business profitable? Is the business financially sound?

4. Who is the main competition? – Is the market developing? How competitive is it? Does the franchise have a competitive advantage or unique selling points? What market research did they do?

5. How many franchisees are there? – Speak to as many as you can as a part of your research

6. What are your development plans? – Are there sufficient resources? How will they impact on your business?

7. How is your Head Office organised? – Management, accounting, sales support, administration. Is this a well organised and significant business?

8. Did you carry out any pilot operations? – If it’s a new franchise ask them to demonstrate its success

9. How many franchisees have failed? – What lessons have they learned? Are they prepared to discuss these openly with you?

10. How do you choose your franchisees? – What skills and attributes are they looking for and how selective are they?

11. Are you a member of the British Franchise Association? – If not why?

12. Can I take up references? – Bank reference or other reliable sources

Costs and projections

13. How much does the franchise cost in total? – What is included in the package and how much working capital will be required? Is there any additional expenditure? Is it value for money?

14. What are the ongoing charges? – Management service fee, mark up on goods or services, advertising levy, any other costs?

15. What are the key financial ratios? – Gross profit margin, typical overheads, projected net profit, stock turnover, debtor days and break-even figure. Are they realistic?

16. Can I see actual trading figures from existing franchisees? – Do these confirm that your projections are achievable?

17. Are there any financial arrangements I should know about? – Vehicle and equipment leasing, supplier terms, national accounts, requirements to replace equipment or refurbish premises

18. Is there a minimum performance requirement? – What happens if you don’t achieve it? Is it achievable?

Methods

19. Is the business seasonal? – When is the best time of the year to start trading?

20. Can I choose alternative suppliers? – Am I obliged to buy goods from your nominated suppliers? Are there minimum order levels?

21. Do you allocate exclusive territories? – How many potential customers do you have in your area? How big is your territory? Does the proposed area suit you? What restrictions are there?

22. For how long is the initial franchise licence granted? – Is it renewable? Is there a fee payable on renewal? What happens at the end of the term?

23. What restrictions will there be when I sell the business? – What penalties are there if you terminate the agreement? Are these terms acceptable?

24. What marketing programme do you have? – What are your and the franchisors obligations?

Support

25. What training is provided? – Consider both initial and continuing training. Who pays for it? Is it classroom or field based training?

26. What support do you provide prior to the business launch? – Will you get help with site selection, lease negotiation, design, refurbishment, equipment, vehicles, staff recruitment and stock? What launch support can you expect?

27. What ongoing support do you provide? – Who will be you main point of contact? Are there regular review meetings and field visits?

28. What support is available if you run into difficulties? – Has the franchisor past experience of successfully supporting other franchisees with problems?

29. How often does the network get together? – Are there regular meetings and conferences where you can share best practices and get advice from other franchisees?

30. Can I meet your Head Office team? – What experience do they have and will they be able to support you to grow your business?

Franchising – You decide

Of course, franchising is not right for everyone. For people who value independence or want to run a business without restrictions or to re-invent the wheel, franchising might not be the right option. Anyone considering investing in a franchise must be prepared to ask some probing questions of the franchisor. Their responses will assist you in deciding whether the franchise is right for you.

If they only seem interested in taking your money and not supporting you develop your own business you should be prepared to walk away. You must be one hundred percent comfortable with the proposed investment. You are looking for a franchisor that is passionate about supporting you to build a successful franchised business which will be beneficial to both parties.

The franchise relationship must be built based upon mutual trust and respect. The franchisor provides support and motivation to their network of franchisees and in turn benefits from their ultimate success through a share of the profits. Running your own business requires self-motivation, stamina and you’ll also need the ability to stick at it in adversity. At the same time, you must be prepared to accept the franchisor’s rules for their business system. Be honest – Will franchising be right for you?

Ask yourself the following

• Are your goals realistic and attainable?
• Do you have the drive, tenacity and self-discipline to succeed?
• Can you develop and sustain relationships with a wide range of people?
• Do you have the full support of your family?
• Is the price right and will it deliver the returns you need?
• Are you up for the challenge?

Richard Holden
Head of Franchising
Lloyds TSB Bank plc
Tel: 07802 324018
E-Mail: richard.j.holden@lloydstsb.co.uk