How do i choose a franchise?
When buying a franchise it is imperative that you do as much franchise research as possible… there's no such thing as too much research! Undertaking this research will help you to properly examine all aspects of the opportunities, helping you to understand which ones to discard i.e. those that don't match up to your requirements and expectations, and which ones to look at in more detail.
In Step 4 we look at how to assess a franchise opportunity. We will equip you with the necessary knowledge to be able to distinguish a good franchise from a “bad” franchise and what to expect from an ethical franchise. We provide you with what questions to ask the franchisor and existing franchisees, and vitally, how to avoid franchise pitfalls.
The importance of brand identity when buying into a franchise
In this article, Franchise Brands talks to us about the importance of brand identity.
Many people fail to understanding why branding and brand identity is so important when setting up a business. A brand goes far beyond a logo – it encompasses everything about a business, from company values to customer experience. Ultimately, a brand is a promise to your customers, and has more potential to be successful than a business with no story.
By buying into a franchise with a reputable brand name, like ChipsAway, Ovenclean or MyHome, a lot of the hard work is done for you! You don’t need to dedicate time to building a reputation and raising awareness – you already have a strong name behind you.
A Havas study called Meaningful Brands, surveyed 300,000 people in 34 countries and asked them how they felt about 1,000 brands spanning 12 industries. According to the findings, a meaningful brand has a 46% higher “share of wallet” – defined as how much a person spends on a particular product – than a low-scoring brand. In addition, the top 25 most meaningful brands outperformed the stock market by 133%.*
There are several key benefits that buying into a branded franchise can give you:
A strong brand raises awareness within the market, meaning consumers are more likely to buy into your product/service as they will think of you first. For example, if you have set up your own oven cleaning business which is not part of a brand, and a reputable brand like Ovenclean are offering the same service as you are, consumers would be more likely to buy into their products instead. Your business and products don’t exist to potential customers if they have never heard of you.
Consumers are also more willing to spend money on a brand, because effective brands influence customers to view their products as premium. As mentioned earlier, if you buy into a meaningful branded franchise, research shows that individuals will spend 46% on your products or service.
When people buy into a brand they know what to expect, they trust that the brand is consistent, reliable and high quality. 45% of a brand’s image can be attributed to what it says and how it says it – your brand represents you and your promise to customers.
Enables you to connect with people
A brand allows you to have a story which portrays your morals and values. Consumers who share your morals and values will then buy into your brand, making them feel good about themselves.
Ultimately, buying into a franchise with a powerful brand name gives you more potential to be successful and sell your products and services at a higher price!
Article by Franchise Brands. Franchise Brands plc is a group of international multi-brand franchisors with a combined network of over 350 franchisees.
Assessing the franchise opportunity
In this article we look at the 5 key areas you need to look at when assessing a franchise opportunity. This evaluation will help you to identify if the opportunity is deemed ethical or one to avoid.
The first step is to assess the franchisor and its business. When you take up a franchise you are entering into a long term business relationship and it is very important that you spend some time looking into the background and performance of your prospective partner.
These enquiries should be backed up by financial information on the franchisor, including the audited accounts. Your accountant will comment on the accounts for you and a bank reference on the franchisor, obtained for you by your bank, might be helpful.
Information on the performance of the existing franchisees should be forthcoming and the franchisor should be willing to let you have a full list of franchisees to whom you can talk or visit.
In the case of a new franchise you should look carefully at the performance of the pilot operation. Then there is the nature of the franchise business itself - you should ascertain whether or not there is a market for the products or services in your chosen area and what the future market is likely to be.
So having established the soundness of the franchisor and the business you should then look at the strengths and weaknesses of the franchise operation.
Critical to your likely success or failure is the level of support and training available from the franchisor, both at start up and subsequently.
There should be a comprehensive operations manual which gives you guidance on all aspects of running the franchise operation. An important aspect to consider is what help, if any, does the franchisor give in respect of any staff recruitment and training you may have to undertake.
3. Legal Contract
The next step is to consider the legal implications of the franchise contract. As this document will be legally binding once you have signed it, you should receive a copy well in advance.
We strongly recommend that you obtain independent legal advice on the contract from a solicitor well versed in franchise agreements, preferably a British Franchise Association affiliate.
Having got this far, and assuming you still wish to proceed, the next step is to examine the financial aspects of the franchise. Broadly speaking, these fall into two categories - the start up costs and the hoped for income/profits.
Looking at the start up costs first, it is important that you identify the total amount of money required to get the business started, including any ‘working capital’ needed.
Against this sum will be set the amount of cash you can put into the venture, leaving the sum you will need to borrow. You will then have to consider what assets, if any, you or the business might have available as security for the required loan.
You must be prepared to take a realistic view of what might be a practical possibility in borrowing terms - whilst unsecured borrowing might be possible in some circumstances for a good franchise it is, for example, unlikely you can borrow say £90,000 towards a franchise costing £100,000, especially if you have no security.
Having established the start up costs and borrowing requirements, you will then have to look at the potential earning power of the business on a realistic basis. Does it justify the level of investment and can you recover your investment?
Having satisfied yourself on these points you will have to get down to the detail, ensuring that any profit forecasts and cash flow forecasts prepared by the franchisor for your franchise are sensible.
This is also a good opportunity to look closely at matters, such as how the franchisor takes its income and what other fees may be payable. The last hurdle then remaining is to take the projections and your business plan to your bank and to convince them to lend you the money!
One final point. Whilst the steps outlined above might appear time consuming and tedious, you must remember that taking on a franchise is likely to be a very important and major step in your life. So it is worth taking the time to assess the franchise properly and get as much professional advice as possible on how to do so.
Questions to ask the franchisor
When looking to buy the right franchise for you, you must have confidence in the franchisor you choose and ask them questions about their business and the structure of their organisation at the early stages.
Below are some questions to ask before buying a franchise to help you assess the opportunity. Please bear in mind that there are many types of franchises and you may have to tailor these to suite specific franchise models.
- What is the background of all the directors? Have they got franchising experience? Why did they decide to go down the franchise route?
- Are they financially sound? Have they ever been bankrupt?
- What is the total cost to buy a franchise? Will you supply me with a breakdown of all costs necessary to open the business? What are these costs?
- Are there any other costs I can expect to be asked for after I open the franchise? Do I have to contribute to any other costs such as advertising and promotional expenditure that you incur, if so how much?
- Do you charge ongoing franchise fees and if so what are they and how are they calculated?
- Do I have to pay a deposit or upfront payment, and if I do not proceed will I lose my deposit or any part of it?
- How much working capital would I need, and what help can you give me in estimating my projections?
- What is my expected break even and how long should it take me to reach this figure?
- How long will it take to start trading from the time I sign the contract?
- How thorough is the training at the start-up stage and thereafter? What will the training consist of and how long will it last? Are all training costs included in my franchise fee?
- What help, if any, will I receive if I want to do some advertising and promotion on my own?
- What ongoing support am I provided with?
- What help and guidance do you offer in site selection?
- Do you provide instructional and operational manuals and can I see them prior to signing?
- Can I be provided with a full list of all franchisees in the network and can I contact them?
- How many franchisees have you opened in the past 12 months? How many do you plan to open in the next 12 months?
- How successful is the franchise and the existing franchisees? Can you tell me about the best and worst performing franchisee?
- How thoroughly do you vet prospective franchisees to maintain a high standard in the network? How many do you reject?
- Have any franchisees failed, and if so why?
- How do you handle grievances with existing franchisees?
- Will the territory offered be for my sole and exclusive use?
- Are you currently operating in areas with similar demographics as my proposed territory?
- Does your company see any threats in the current marketplace?
Though this is a good array of questions to ask when buying a franchise business, it is not an exhaustive list and so you should expand on any areas you wish more clarification on.
Talk to existing franchisees
It is vital when doing your research that you speak to existing franchisees in the network – they will be your most useful source of information and franchise advice. A good franchisor will always give you access to ANY of their franchisees.
If they are reluctant for you to do this, or only give you several names to contact, then they probably have something to hide; you can bet that the names they give you will be of their best achieving franchisees.
Why is it important to speak to franchisees while I am researching a franchise business?
Franchisees have been there and done it, and so will tell you as it is. It is good to speak to those who are successful and also any that are not doing as well.
If it is a good franchise then you will be able to identify why franchisees may not be doing as well - it will usually be down to personal circumstances. If, however, a pattern starts to emerge and a lot of franchisees are giving the same reason for their poor performance, then alarm bells should start ringing.
Get in the franchisee's shoes!
You can also ask to shadow a franchisee for a day. This will allow you to see what a typical day in the life of that franchisee is like, allowing you to see if it is something you would be interested in.
The franchisor should be able to arrange this for you. Franchisors may also allow you to speak to any franchisees that have left the network to give you an idea as to why they left. Again from this you should be able to get a better idea of how good the franchise is.
Potential questions to ask when buying a franchise business can include:
- What was your reason for choosing this franchise? And what USP’s does it have over its’ competitors?
- Where you happy with the support you got at the launch of your franchise? What support did you receive?
- Have any problems occurred for you? If so, how did the franchisor deal with these? Overall is the franchisor supportive and available if you need advice?
- How does the franchisor manage change in the business? How do they implement change? Is sufficient training and support given?
- Does the franchisor visit you often? Is the operations manual and other supporting support documents well written, comprehensive and easy to follow?
- Does the franchisor welcome feedback and ideas from franchisees? Have any ideas been implemented? Do franchisees have any say in the running of the business?
- How does the franchisor market the business? What marketing do you specifically receive? Is it sufficient?
- What are you sales figures like in comparison to the company as a whole? What is the company’s weekly, monthly and annual sales figure typically like?
- Are your ongoing fees reasonable? Is what you receive in return sufficient?
- How much did you pay for the business? How much working capital did you require? Have you had a return on your money yet? If not, when do you forecast you will?
- Are you allowed to buy multiple territories once you have built up your first franchise?
- If you were taken ill and couldn’t work, what help would the franchisor provide?
- What changes have you seen in the business since you have been there? Have these been positive changes?
- If you could change anything about the business, what would it be?
- Would you do it all over again if you had the opportunity?
This is not an exhaustive list of questions to ask when buying a franchise, but it gives you a good start to what you should be asking the franchisee. Other questions may arise depending on what they answer.
The answers will help you to build a picture of the franchise and at the end of it you should be in position where you either want to continue with applying for this franchise opportunity or have decided to look elsewhere.
Evaluate the franchise market
If you are buying a franchise opportunity, you are going to be working, selling and promoting the product or service for a long period of time. You can’t change or develop the product or service, so make sure that the franchise has long term appeal and its market is not threatened in any way.
It is important that the franchisor can demonstrate a clear understanding of the future market for the product or service and that you both clearly understand the following.
Is the market for this product / service expanding rapidly, growing slowly, static or declining?
Notes to consider: The more advertisements you see for the product or service now than a couple of years ago can give you an indication of the state of the market
Does the product / service have special features which help it to sell? Does it warrant a premium price?
Notes to consider: In order to make money for the franchisee and franchisor, the product has to have real advantages over competitors. It may be difficult to maintain premium prices if the product or service could be easily copied by others.
Who would your competitors be and how competitive would your product or service be in relation to them?
Notes to consider: Do competitors have any technical or price advantages? Could you improve on the service offered? What is their level of advertising? If there are no competitors ask yourself why there are none.
You have looked at the general market for your product, what do you know of the local market in which you will be operating?
Notes to consider: Does the local market have the same characteristics as the market in general? Is the product particularly suitable for your area? How dependent is success of the business on particular lifestyles or levels of income?
How to avoid franchise pitfalls
Do you know how to spot a pitfall in a franchise? Or how to determine if you’re buying into an ethical franchise?
As a prospective franchisee it is essential to know what you should look out for when investing in a franchise and how to avoid buying into a franchise that isn’t for you. In this exclusive article, Aspray share their expertise:
Research, research, research!
Before you dive into a huge financial commitment it is vital to gather as much information as possible to help towards a fully informed decision. Remember… do this before you’ve handed over your money! The simplest way to research the franchise is typing in the company name on a search engine to discover the industry and the service that they offer.
Any concerns that you may uncover during research, you should write down to discuss with the franchisor in the early recruitment stages.
Look for franchises who are members of the bfa
A great way to start your initial research is looking only at franchises that are members of the British Franchise Association. “The bfa is the voluntary self-regulatory body for the UK franchise industry, with a standards-based approach to membership.”
In order to gain a full bfa membership franchises are tested against the structure of their business, relationship and support between the franchisor and franchisee, their system and finally their success as a franchise.
You can be assured that franchises who are bfa members are committed to the principles of ethical franchising and their business model has been examined. Being a member of the bfa is also favoured by many high street banks and prospective franchisees are more likely to secure the funding they require for success.
Talk to the franchisor
Top franchisors will provide you with an in-depth insight into their business model before any form of payment is taken. An ethical franchise will be honest about the work you will have to put in to reach your target earnings. On the other hand if franchisors offer a ‘get rich quick’ attitude, it is more than likely too good to be true.
It is important to take it slow and don’t rush into (or be pushed into!) buying a franchise based on instant income which will more than likely turn out to be a false promise.
Study the recruitment process
Buying a franchise is not as simple as handing over the franchise fee and signing the agreement. Top franchises have rigorous recruitment processes in place to make sure they choose the right person for the territory.
Top franchises will have several steps within the recruitment process in order to protect their business integrity and maintain the high standards of chosen franchisees. On the other hand if a franchisor is pushing you into buying a franchise with limited information provided, this could be a warning sign of a franchisor who just wants your money.
Talk to existing franchisees
Top franchises will offer you with the chance to speak to existing franchisees in the network. Talking to franchisees already in the network can be a valuable experience as they have been in your position.
They can be honest about the positives of the franchise as well as the barriers you may face. If franchisors don’t allow you to speak to any existing franchisees, they may have something to hide and buying into this could be a mistake.
Check the franchise agreement
The franchise agreement should cover all aspects of the business. It would be beneficial for you to hire a franchise lawyer to check the agreement before any decisions are made.
Speaking to a franchise lawyer would be beneficial as they understand what to look out for and can point you in the right direction.
When you are considering purchasing a franchise, these steps can help you to avoid pitfalls and help you avoid franchises that don’t meet your needs.
How to avoid franchise scams
In the UK there are hundreds of businesses that call themselves franchises. However, despite promoting themselves as one, they are not all technically franchises
With this in mind you need to know what to look out for when considering buying a franchise; how to spot a good franchise from a bad franchise. In this article we provide you with ten areas you should focus on and questions to ask before buying a franchise.
Are they a bfa member?
A good starting point would be to look at only those opportunities who are accredited by the British Franchise Association (bfa); this is the body that represents franchising in the UK. Not all franchises promoted on whichfranchise are members of the bfa. However, even if the franchise is a member of the bfa, you still need to do your homework and take as much franchise advice as possible, as being a member does not automatically guarantee success nor does it mean the franchise business won’t fail.
Have you spoken to the franchisor?
Talk to the franchisor, a good franchisor will be happy to tell all and give you a good insight into their business. They will tell you about their ups and downs, challenges faced and overcome and will be happy to disclose any mistakes/failures they have made in the past.
A good franchise will have used a trial period to identify these errors and would have worked hard to overcome them. However, be wary if someone tells you that their franchise is perfect and they have done no wrong, this is very rare.
Do they promise you immediate riches?
You should equally have alarm bells ringing if they tell you that they can make you rich over night. This will never happen. An ethical franchisor will not make promises to earnings but may give you predictions based on other franchisees in the network; consequently managing your expectations.
Do they pressure you into buying their franchise?
Never be rushed into buying a franchise. If someone is constantly harassing you to make a decision then simply walk away. Finding the right franchise to buy is a massive decision as well as a massive investment. You need to do a lot of due diligence which any good franchisor would understand and recommend.
They would be happy to give you all the time in the world you need to make the right decision for you and for them. If someone is pushing you into a decision and not open to talking about the company, it is more likely than not that they will have something to hide.
Do they answer all your questions?
A franchisor should also be able to answer any questions you throw at them about their business. Make sure you have a prepared list of questions to ask when buying into a franchise. The franchisor should know the business inside and out and so should not falter at any questions you ask.
If they cannot answer immediately, then they should be looking to get back to you ASAP.
Do they use gimmicks to sell their franchise?
Also be suspicious of any special promotions a franchise is running. A good franchise’s track record would speak for itself; they wouldn’t need any fancy gimmicks to sell their franchise. You can be sure that the cost of any freebies you think you are getting will be added on somewhere else in the package. Or there is a reason it is free.
Are they a new franchise?
Every franchise is new at some point, even McDonalds started off as a one unit franchise, and so you shouldn’t be put off if a company is new to franchising.
You should be aware though that the risks will be higher when buying a new franchise as it is less established. Check the history of the company itself; this should give an indication to the type of business it is. If the business is new then they shouldn’t be franchising; you cannot make a franchise successful if the business has not proven that it can be successful.
Only established, thriving businesses with a proven track record in their market should look at franchising. You need to therefore also avoid any “franchises” that have no company owned outlets as this is a franchise scam.
Do you get a return for your investment?
Make sure that what the franchisor is asking for in fees is worthy of what they offer you in return. The more established a franchise is, the more they will ask for as they will be able to give more back in return, i.e. public acceptance, market awareness, dominant position in market etc.
Watch out for those who ask for a high investment but offer nothing in return, i.e. no track record in their industry, as they are just looking to make a lot of money fast.
Does your franchise fee cover initial training and support?
The franchisee fee you pay should also cover support. Make sure that the franchisor has a dedicated and complete support system. If the support is limited or non-existent then this is something to be concerned about.
It is worthwhile seeking money advice and planning advice from your accountant to make sure that you can afford the franchise and have sufficient funds to cover the actual cost of running the franchise. Sometimes you may think you know the actual cost to buy a franchise but does it include the ongoing fees, working capital etc. Your accountant should be able to help with this, also ask the franchisor out right, how much does it cost to buy a franchise from you.
Do they provide you with a full list of franchisees?
A good franchisor will provide you with a full list of all their franchisees that you can speak with, not just one or two they have selected, who you can be assured will be the best performing franchisees in the network and may not tend to be a true representation of the system as a whole. You should be offered the top and bottom performers to speak to. Also ask how many have left the system and if you can speak to them.
We cannot stress enough how important it is that you do your due diligence and take the right franchise advice (money advice from your accountant and franchise legal advice from an experienced franchise solicitor) so that you are 100% certain that it is the right franchise for you, and one that is reputable, before looking to buy it.
If you are in any way in doubt about the franchise opportunity, then there is probably a good reason for this so maybe best to walk away.
Franchisee Training For Success
By Phil Gaffer QFP, Franchise Sales and Business Development Manager, Papa John’s
One of the main advantages of joining a franchise is the level of training which is provided by the franchisor. It is in the franchisor’s interests to ensure all franchisees are thoroughly and properly trained so they have the best chance at succeeding in their new business venture.
Papa John’s, like many major franchises, has a set-up which is arranged as a win-win situation: so, the more product (in our case pizza) our franchisees sell, the more profit they make and in-turn we do better as a franchisor. Success comes down to having excellent systems in place, a superior product, great service and the best people but, most importantly, detailed and thorough training. Every aspect of the enterprise including all processes is covered within franchisee training this means everyone knows how to deliver our product and service perfectly each time and every time.
Franchisees come from all walks of life and have varying experience. Some new franchisees may already be proficient at certain aspects of running a business. Perhaps they have been self-employed in the past or they might not know the industry but have had experience in managing staff. This will undoubtedly be an advantage, however, it is any franchisor’s role is to ensure everyone is up to speed so they can start work from the same base-line. Training for a typical franchise will usually cover products, customer service, processes, marketing, accounting and staff training.
Compare this approach with starting up a new business from scratch. There is a steep learning curve when starting any new enterprise, however, it is much more efficient to learn through training than from expensive mistakes which is almost inevitable when starting up alone.
At Papa John’s we provide a detailed franchisee training programme. Regardless of franchisees’ backgrounds or prior experience, with the right attitude and our correct and thorough training, backed-up by world-class service and product, all the ingredients are in place for anyone who is motivated and determined enough to create a successful franchised business.
The training franchisees receive ensures they will be ready to run a Papa John’s store from day one of opening is detailed and hands-on. It includes six weeks in total – half in-store plus plus three weeks at Papa John’s headquarters. Franchisees need to complete a specified number of hours in-store to gain accreditation to open their own outlet. However, our training doesn’t finish there. On store opening, Papa John’s head office staff work alongside the franchisee initially to help with any hands-on training – particularly of staff - which may be needed during the initial stages.
New staff attend our Milton Keynes HQ and specialist training facility and training takes place while the franchisee’s store is in the fit-out stage. Our operations support team will continue to work with the franchisee and their staff within the newly fitted store environment to give continued training until they are confident and ready to open for trade, this additional support/training is usually between five to seven days post fit out.
Like many franchises Papa John’s and the pizza industry really is a people business! We know happy people make the best pizza! Therefore, we aim to recruit franchisees who get on well with others but who are also as dedicated and passionate as us and able to adapt to a proven way of working. The desire to roll-up sleeves up and get stuck in, which means everything from making pizza through to managing staff, goes a long way! The best franchisees are organisers with a can-do attitude – they are people who get things done. The role can be incredibly rewarding for the right person.
These qualities represent those of many who are successful in business. However, without the right training and learning the best way to tackle processes to deliver a top quality product to customers from those with many years’ experience there is far less chance of success. Papa John’s training programme is our investment in the success of our franchisees’ stores and for the future of our business a as a whole.