Advertisement

Keep a healthy dose of skepticism about franchises, franchisors and franchise specialists.

Make your own choice of advisers, do not use those suggested by the franchisor. The most unbiased advisers are likely to be a High-Street bank – some of which have specialized franchise giving independent advice – and the solicitor and accountant you employ to advise you.

Get your accountant to examine the forecasts given to you by the franchisor and to advise you on how realistic they are.

4. Ask your solicitor to go through any contact carefully to bring out clearly the restrictions and also the ways in which the franchisor will be making money. A legal affiliate to the British Franchise Association will have specialist experience.

5. Find out how many franchises have already been sold and how long they have been going.

6. Find out, visit and talk to existing franchisees. Do not allow yourself to be restricted only to the franchisor’s choice of references.

7. Be particularly careful if the franchise you are interested in is one of the first to be sold. You will need to study the pilot operation with a fine-tooth comb. Does it mirror your likely business? Does the manager of the pilot have the same sort of knowledge and skill as you? Are the premises and their location much the same? Is the stock identical?

8. Watch out if the initial fee is relatively large and the continuing fee relatively small. It is essential for the franchisor that the business continue to be promoted and properly managed. The success of your business depends on how effective the franchisor is in marketing and purchasing.

9. Look carefully at the arrangement for purchasing equipment and stock. You do not want to be forced to buy new equipment if it is unnecessary not do you want an arrangement in which the franchisor can increase the mark-up on products sold to you. Is it possible to purchase supplies from alternative sources?

10. Investigate the franchisor. The continued existence of the franchiser’s business is important to you, because it caries out the marketing purchasing and other centrally organized functions. Get references and credit ratings. Ask the franchisor to give you a copy of the latest accounts and ask your accountant to study them.

11. Be careful about buying a franchise from a franchisor who is not a member of the British Franchise Association. Membership does not guarantee the success of your business or the franchisor’s business. And a number of quite reputable franchisors do not belong to the association. However, members agree to abide by a code of ethics. Ask a franchisor why it is not a member, if it is not.

12. Check that your territory is properly marked out (and you receive a clearly defined map of it). What market research has been does to ensure the territory is promising enough to provide the estimated sales? Do your own analysis – don’t rely on the franchisor.

13. Examine what will happen if you die, want to sell your franchise, disagree with your franchisor or want to renew at the end of the term of the franchise.

14. What sort of product is it? It must have a useful life of at least the length of the franchise which you are purchasing. There is very little point in buying a five-year franchise for a product with a life of only three years.

15. Carry out market research in exactly the same way as if you were setting up the business on your own. Do not rely on market statistics or views passed on by the franchisor.

16. Check that the product has been patented or the name registered as a trade mark, otherwise the franchise you buy could be worthless.

17. How will the advertising levels be maintained? Does the franchisor make a firm commitment in the contract to spend certain amounts on promoting the brand name?

18. What is the quality of the field force run by the franchisor? How often will they visit? Are they competent to give sound business advice? What will happen if your business runs into difficulties?

19. The relationship between franchisee and franchisor may, in a few cases, prove difficult to maintain at a harmonious level. What are the lines of communication? Do you think that you will be able to build a good relationship with this particular franchisor?

20. If it is a good franchise, you will face competition from other would-be franchisees. So you should expect a grilling. And if you are not subjected to close investigation, this may indicate that the franchisor is short of buyers.

21. Many points on which you need information before you tie up an agreement with a franchisor are listed in this chapter. Make sure you cover them in your discussions, and check the franchisor’s response.

Advertisement