FFranchise Q&Aranchise Q&A
[Bio] Ian O’Connor
is managing director of Slimproved
Q
What kind of support should the
franchisor be offering?
A. Support is essential to any franchise business and is one of the key motivators for investors choosing to go with the franchise model rather than developing a business or brand from scratch. The word ‘support’ is a much- maligned one, as franchisors offer it to different degrees. Some franchisors make the majority of their money selling franchises and this is their core business. Others utilise the sale of the franchise in building their network for the success and profi tability of the franchisees and the brand. The latter, of course, is the model that any potential franchisee – irrespective of their business experience – should seek, simply because the brand needs to support the franchisee in order to generate mutual revenue and profi t.
So what does support look like and what should the franchisor be offering? From the outset, the franchisee should look at the tangible support on offer and the documentation and assets the brand has in existence. A foremost concern of any prospective franchisee is how new business and customers will be generated. Does the brand support their franchises with
localised or national advertising? Does the brand support their franchisees with localised search engine optimisation? How are payments going to be made? Does the brand support cashfl ow? Do they factor customers’ debts? How quickly does the franchisee get paid? Is there a centralised call centre to support customer enquiries or bookings? These are all important aspects of support. Training is fundamental to the success of any franchise business, whether this is on practical or technical management. Is this inclusive? Is this ongoing as the business changes and develops? Support is a wide and varied topic and each business is different. Support is, however, the core element a franchisee requires in order to understand and operate the business successfully and profi tably.
[Bio] Carl Reader
is a partner at Dennis & Turnbull Chartered Accountants and Strategic Advisors
no formal underwriting procedures to go through, so this can often be seen as the easy route to fi nancing. Having said the above, it is essential that you approach a family loan in a professional manner so that all terms are clear from the outset and to limit any risk of a relationship breakdown as a consequence of any misunderstanding. I would strongly suggest that a business plan, together with fi nancial projections, is prepared as if you were looking for bank funding. This will allow you to appraise the opportunity fully, and ensure that the terms discussed are realistic.
Both parties should then draw up
an agreement, with legal advice where appropriate, covering the terms of the loan, including interest rates, how interest is calculated, repayment period, and any fl exibility of repayments. If the agreement includes an equity share in the business, you will also need to agree the percentage, and whether there are any differential rights between the parties (such as voting rights and on payment of dividends). By covering the key areas above in
an agreement, you can help prevent future misunderstandings that could affect both the business and, more importantly, family relationships. n
Q
I’m considering raising funds by borrowing from
family members. Do you have any advice?
A. Borrowing money from family members is a popular way of obtaining funding to start a franchise. Often the interest rate is more attractive than bank fi nancing and the terms are more fl exible. Also, there are
April 2014 |
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