FRANCHISE ADVICE
his article was prompted by the main premise of an article I read elsewhere that discussed the way in which franchisors
advertise their business opportunity – and there being no common approach to describing the investment – a subject dear to our collective heart here at Ashtons. When advertising a franchise, is it fair to claim ‘investment £25,000’? When in reality the figure uoted refers to what free cash the franchisee needs to contribute, and the rest would be by way of a finance package It's a tactic that can lead to frustration for the potential franchisee and waste the time of everyone involved. We know that franchises have to be “sold” by attractive promotion but an honest and realistic approach from the outset, is sensible in the long run, since both would-be franchisees and would-be franchisors can be misled by the idea that they can get value at a low price point, or ‘something for nothing’.
Two quotations spring to mind:
‘He knows the price of everything and the value of nothing’ – Oscar Wilde on referring to the definition of a cynic.
‘It's unwise to pay too much, but it's worse to pay too little. When you pay too much, you lose a little money - that's all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot - it can't be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better’ – John Ruskin.
There are franchise opportunities
covering a broad range of investment levels. However, would-be franchisees should be wary of very low-ticket franchises. The chances are that what is on offer is not a true business format franchise. A properly prepared franchisor will charge proper fees but can justify them.
When you are carrying out your due
diligence when researching a franchise you should look very carefully to make sure the franchisor declares from the outset exactly what the investment will be, what it will cover and how much working capital you should have available to begin trading and so on.
Typically, a franchisor will charge for the following:
1) The franchise licence fee. It is their recompense for having provided you with their know-how, expertise and intellectual property to trade in your location for a number of years. When you are trading there, they cannot trade there, so this is by way of compensation. 2) The training programme. 3) The hard consumables – vehicles, equipment, uniforms etc. 4) An initial marketing campaign to launch the franchise. 5 A professional property finders fee if it is a premises-based franchise. Store fit-out. 7) Marketing and merchandising materials. 8) Anything else that is necessary in order to trade, such as professional fees, subscriptions to certain marketing websites locally.
The franchisor should also tell you very carefully how long it will take you to begin generating income and work out with you the necessary working capital that you will need to support yourself while the business builds up.
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