Acquiring a franchise business requires some careful decision-making, always underpinned by thorough research. While brochures and a spot of Googling can reveal important details, taking the opportunity to meet and directly question your chosen franchisor is as invaluable as any step.
If their answers are vague, evasive or suggestive of disorganisation or ineptitude, the undertaking may help you dodge a bullet. Or you may simply clash with the franchisor in terms of personality or outlook.
So you need to ask some probing questions before committing your hard-fought savings to the franchise. Here are some suggested enquiries.
How extensively was the business model road-tested?
A franchise opportunity is marketed as a proven template for business success. Therefore you should establish whether the business model arose from a successful independent business, and if so, for how long did that venture operate before the concept was franchised?
This matters. Clearly, a profitable venture that has first been rigorously field-tested and fine-tuned over several years is a very different prospect to a blueprint conceived as a franchise from the outset.
How much cash do I need to get the business up and running?
Would-be franchisees should study the fine detail of set-up costs. A franchise fee secures the right to operate a franchise, but there are other costs to meet before any business can start trading.
What ongoing fees will I have to pay?
All franchisors charge their franchisees ongoing fees for the privilege of using their brand and to finance the activities of head office. How the fees are levied varies, however, with some charging a fixed weekly/monthly fee and others – the majority – charging a percentage of revenues.
Franchisors may also charge fees for advertising/marketing or training or impose a mark-up on products. Make sure you’re aware of all the fees involved and exactly what this means for your monthly incomings and outgoings.
How long will it be before I can start trading?
A franchisee’s living costs must also allow for a certain pre-launch period when no earnings are generated. Depending on the nature of the franchise – a home-based business would probably launch sooner than a McDonald’s, for instance – this could take anywhere from a few weeks to several months.
How long will it be before I can generate a profit?
Businesses rarely generate profit from day one – although franchises do so much faster than independents – so your start-up costs must include working capital to cover the period when outgoings exceed your revenues.
If you will rely on the business as your sole source of income, this calculation also needs to factor in an allowance for living expenses.
What income can I expect to earn?
The franchisor should give you projections of the franchise’s anticipated profitability. You must satisfy yourself of two things (perhaps with the help of a professional adviser): that the figures are credible and, if so, that the income will justify your time, effort and financial investment.
Quiz the franchisor on how they arrived at these figures. Be wary unless they are based on anything other than real-world evidence – ie, the financial fortunes of existing franchisees.
Ask how many existing franchisees currently operate and how many have achieved such impressive results. Are the figures based on the average performance of all franchisees or that of the most successful franchisee?
And make sure all the ingredients that underpinned the success of other franchisees – for instance, a prominent high street location and strong demand for the product – are in place for you too.
Is the business seasonal?
Does the business have peaks and troughs in demand – based on weather or holiday periods, for instance – or is demand fairly consistent throughout the year?
You may wish to launch the business during a quieter period so you can learn the ropes before a busy period begins.
What training and support will I get?
Training and ongoing support are two of the most compelling advantages of buying a franchise. If a franchise seems deficient in these areas then it isn’t worth pursuing.
So get a clear picture of the scope and nature of the training and support on offer.
How extensive is the training? If the business model seems complex but the franchisor promises to train you in a single day – be alarmed.
Is it a one-size-fits-all package or customised to a candidate’s skills and experience? The franchise might, for instance, assume a certain level of IT expertise that you lack.
And how much support can you expect when the business is up and running? Will your call be answered promptly if you contact head office with a problem? Will support be available throughout – and even beyond – your own opening hours?
Will someone visit your premises if you need someone on site? And how quickly will they arrive? How far from your premises is head office or your local support team?
What marketing support will I get?
The franchisor should conduct marketing campaigns on behalf of the franchisee network – another major advantage of the franchise model. Ask the franchisor how much they invest in marketing and through which platforms – whether it’s social media, TV, direct mail or other media.
What trading restrictions will be imposed on me?
The franchise concept demands that you adhere to a tried-and-tested formula. This means that a number of trading restrictions will apply – all of which should be clearly described in your franchise agreement.
These can include prescriptions on signage, interior decor and uniforms; product range and pricing structures; which suppliers you can use and conditions such as ordering minimum quantities; and more besides.
Can I speak to existing franchisees?
This is arguably the most important step of all: validating the franchisor’s answers through conversations with existing franchisees. Walk away if the franchisor seems reluctant to put you in touch with any.
Don’t just visit operations recommended by the franchisor as examples of best practice; request to visit other franchises so you can hear a ‘warts and all’ account of running the business.
And make sure you have these conversations in private – the presence of someone from head office might inhibit franchisees from speaking frankly.