Franchise Q&A Next we need to look carefully at how the
fi nances would work and how the business would be structured, if it were to operate as a franchise – the point being to establish whether both the franchisor and the franchisees will eventually achieve suffi cient income and make a reasonable return on their investment. Generally speaking that means the higher the gross margin the more likely it is that there will be enough money to spread around.
Finally and arguably most importantly, the business needs to either have, or be capable of adapting to a culture that lends itself to franchising. That means working together, with clearly identifi ed roles and responsibilities towards a common aim of building a successful brand. Businesses that are failing or are
currently no more than an idea are not good propositions for franchising.
[Q] How can I investigate a
prospective franchisor?
[BIO] JOHN
PRATT is a partner at Hamilton Pratt Business and Franchise Solicitors.
[A] Firstly, so far as the franchise relationship is concerned I must dispel your
[A] It is surprising how excited prospective franchisees can be about taking
on a franchise and often this will result in throwing caution to the wind. By all means be excited, but make sure you undertake some basic checks too. The points listed below set out the bare minimum of what you should do to avoid making a bad mistake. 1. Obtain the franchisor’s latest trading accounts so that you can establish how profi table it has been.
2. Obtain a full list of all the franchisor’s franchisees and speak to as many of them as you can. You should not just be provided with the contact details of the fi ve or six top performing franchisees. You want to speak to all of them.
3. Is the franchisor a member of the British Franchise Association (bfa)? Membership is not a guarantee of success but it is a plus.
notion of being a ‘customer’ which implies that a decision to a purchase rests solely with you. To the contrary, a decision to go ahead needs to be taken mutually by the franchisor and the prospective franchisee following a joint process of evaluation. A franchisor will usually respond to an enquiry by making available a prospectus setting out what is involved. The next step for interested parties such as yourself is to request a meeting to explore the possibilities in greater detail; but having provided at the outset quite a wealth of information on the business, it is customary and perfectly reasonable for a franchisor to then call for some personal information, on the understanding that it will be treated in confi dence. It is important to bear in mind that, with the objective of building a successful network and avoiding failures, franchisors aim for objectivity in franchise recruitment. Accordingly, an appreciation of your background and circumstances
4. Ask your bank what, if anything, they know about the franchisor.
5. Ask a bfa-affi liated lawyer to undertake a review of the franchise agreement because almost invariably a poorly drafted franchise agreement means that the franchisor has not undertaken the process with proper advice.
[Q] I am interested in a particular franchise, but the franchisor insists I fi ll in a questionnaire before arranging to see me. Is this a reasonable way to treat a potential customer?
[BIO] PETER
WILLIAMS is a well-established franchise consultant.
will help a franchisor to initially check your suitability, which is much preferable to a ‘hard sell’ approach.
[Q] Can you offer some tips on how to impress a franchisor at the interview stage?
[BIO] ROBIN PAGE
is franchise director of Cash Generator.
[A] One of the main things I look for in potential franchisees is the amount
of research they have done into Cash Generator and how the business operates. They need to understand both our market place and other businesses to have a full grasp on how everything runs and have an idea of how to run a franchise successfully. It is also important to do this from their perspective as they need to be sure that they are really keen and interested in the business for the long term so that they aren’t wasting their time. We will support them with the retail element, but the attributes that help when running a store are good people management skills, effective communication skills and a personable, approachable nature so we look for those aspects as soon as we meet a prospective franchisee. They also need to have thoroughly
researched the cost of the whole process and have looked into their funding possibilities so they know if they can proceed or not.
It is important that someone who wants to be a franchisee is ready to fully commit themselves to Cash Generator and to making their store a successful business.
Contact details
Email your questions to:
editor@businessfranchise.com
February 2012 |
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