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A STEP BY STEP GUIDE ON HOW TO BUY A FRANCHISE
Are you looking at buying a franchise, but don’t know where to start? Wondering about the steps that you may need to take and the due diligence required before starting a franchise? Here are our recommendations as a full member of the British Franchise Association that you should take into consideration before becoming a franchise owner.
1. Create a list of franchise opportunities
There are a multitude of options available for individuals interested in buying a franchise, with industries as varied as pet care to accounting that offer franchise opportunities. Without proper guidance, this can seem overwhelming.
To avoid confusion, we advise that you collect a list of potential franchise opportunities that attract your attention. Try and keep the list to a maximum of 10 franchises and have the franchises you’ve chosen in 3 to 5 different business industry types. Limiting the number of business types will provide further focus, allowing you to compare both franchises that operate in the same line of business and how they compare to different industries.
2. Narrow down the list of franchise prospects
From the list of 10 franchises, you’ve picked, narrow the list down further to 3 to 5 franchises. The criteria for removing franchises should include the following criteria:
- Is the business sector in demand? Is there long term future demand?
- Could you sell the services offered, or not?
- Would you have the experience and ability to run the business?
- Do you have the investment funds required?
- Are the potential earnings enticing enough? Are they reputable and willing for you to discuss these earnings with other franchisees?
- Is the franchise location-based? Do you have a territory to work within that limits your growth potential?
- Would you be happy to run this type of franchise for the next 5,10 or 20 years?
- Are the franchise members of the BFA (British Franchise Association?)
- Does the franchise meet your needs?
3. Conduct research into the franchise you’re interested in
With your shortlist of franchises at hand, it’s time to conduct more research. Create a list with the following headings:
- Company brochure or franchise pack.
- Franchise testimonials.
- Company financial information.
- Company reviews.
Visit the website of each franchise separately and look at the company brochure or franchise pack. If there isn’t one or if you can’t find it, it's a red flag as to why this information isn’t available.
Questions to ask when reading the company brochure/franchise pack include:
- Is the franchise model explained fully?
- Is the financial information regarding the cost of buying a franchise clear?
- Are the potential earnings realistic? Do you believe you could achieve them? Is there someone you can contact that can explain the model in more detail?
Next, find your way to the testimonials section of the website. The company may display testimonials on the website, or they may direct you to visit an external review website such as Trustpilot. Again, an absence of franchise testimonials is a worrying sign, as any reputable franchise business would want to prominently display reviews from people that have purchased a franchise and have achieved success.
Read as many testimonials from franchisees as possible and try to get a general feel as to what people are saying, positive or negative. Observe the franchise website and browse through as many pages as possible. Some questions to ask include:
- Does the website appear to be professional?
- Is the BFA logo displayed? Are there any other accreditations on the site?
- Is the information on the site clear and detailed?
- Would you trust the company with your money?
The final step to take is to search the companies house register and look for information that provides a snapshot of the financial health of the franchise and incorporation data. How long has the franchise been operating? An older business would suggest they are more of an established business, but newer businesses may offer more could provide higher sales growth.
Copy the registered company address and paste it into Google
Does the address appear to be a virtual office address or not? If the address is a virtual one, note this detail down. If the address doesn’t appear to be virtual, paste it into Google Street View and see if the address is that of an actual building.
Visit the Companies House register
Click on the ‘filing history’ tab, view the PDF file of the ‘accounts for a small company’ link and read the financial information available here. Try to locate the ‘shareholders funds.’ This refers to the amount of money that belongs to shareholders after liabilities are subtracted from assets.
4. Conduct an audit of your finances and your abilities
Being realistic concerning your capabilities and the financial assets required to launch a new franchise is critical in ensuring that both your time and money aren’t wasted. We recommend that you conduct an analysis of your finances to see:
- Are you able to afford to buy a franchise?
- What loan size can you acquire if this is required?
- Do you have access to capital to invest in the business so that it grows?
- Can you cover any shortfalls if the business encounters difficulties?
- Do you possess the skills needed to run the business successfully?
- Do you believe you would enjoy running the business?
Asking these questions is important to avoid the mistake thousands of people in the UK make every year of launching a business only to encounter money problems and other issues, months after opening.
5. Seek out advice from friends and family members
During the planning of a new business, hopes, aspirations and future returns can lead to tunnel vision, which can make you lose perspective. Seeking counsel from someone outside the loop may provide a fresh perspective. We advise seeking the opinions of friends and family members before buying a franchise and take into consideration their thoughts on your plans and if they believe your idea is viable. Just be wary that they don’t have your insight, so they aren’t going to know the full picture about the franchise itself, unless they have experience in the industry, which if they do - great!
6. Make contact with the franchise
Now it’s time to make contact with the franchise. Make sure you collect a list of questions to ask. The initial phrase will likely be an email conversation, followed by a call and maybe a visit to the company's offices, where a formal presentation will be made by the franchise's business team. You should have the opportunity to visit or chat with an active franchisee, to get first hand feedback on how they operate their franchise and about their experience of owning the franchise.
8. Ask friends and family for further advice
Armed with information from the franchise, meet family and friends, share the information provided by the franchise and ask for their opinion, if buying a franchise would be a good idea or not.
9. conduct an informal survey of business prospects that may purchase services from you if you owned a franchise
In order to be sure that owning a franchise would have a chance of succeeding, conduct an informal survey of friends, colleagues and acquaintances and ask them whether they would become your customers. Conducting a survey would also allow you to gain an understanding on potential customers needs and wants and any potential issues which could arise. Reach out to your connections on LinkedIn, who may have some insight to the franchisor or industry. People are willing to offer you advice if you reach out to them and their feedback could be key in your decision making.
10. Make your decision
When it comes to making your final decision, if possible give yourself time to digest all of the details and then go with your gut instinct. Create a business plan for the next 3, 6 and 12 months of how you expect to run the franchise, including key points such as when you would expect to break even, etc.