ADVICE
Email your Ask The Experts questions to [email protected].
Read hundreds more franchise questions answered at http://www.what-franchise.com.Q
How can I tell if
my business is
franchisable?JOHN PRATT WRITES:
It’s easier to tell whether your business
is not franchisable.
If your business is unsuccessful or
if the business is successful because
of you and your special abilities, if it’s
a business that depends on skills that
cannot be trained or which requires
a substantial amount of training, or is
fashionable and unlikely to have a long
shelf life, it’s not franchisable.
If your business is franchisable,
that doesn’t mean it’s a good idea to
franchise it. Franchising is by no
means cheap, because you’ll have
to prepare a franchise agreement,
an operations manual, franchise
prospectus and so on. You also have
to budget for advertising, attending
exhibitions and appearing on franchise
websites, etc.
Recruiting franchisees is not
easy and it may take you many years
before you have recruited a sufficient
number of franchisees for you to
earn a profit. Nevertheless, if you’ve
concluded that you need to grow
using other people’s capital and that
your business works better with the
individual motivation that comes from
an owner manager, franchising may
be for you.
Having said that, you must obtain as
much information about franchising
as possible. There is quite a lot of free
information you should obtain before
spending money with expensive
franchise lawyers or consultants.Q
Are a franchisor’s ongoing
fees paid on a monthly
basis?BRIAN DUCKETT WRITES:
In the majority of cases yes they
are and that’s what we’d normally
recommend to our clients.
Whatever those fees are for, be they
management services fees, paymentsfor goods supplied, rental payments on
equipment, contribution to national
marketing or even repayments on
loans from the franchisor, ‘little
and often’ is by far the best way to
pay them. If the payment method is
automatic, for example by standing
order or direct debit, that’s even better.
There are many reasons for
recommending that, the major one
being the franchisor needs to protect
its own cash flow in order to be able
to continue to supply the services the
franchisees receive.
A common theme within
franchising is that franchisees
eventually question the amount they
are paying in ongoing fees. The more
successful the franchisee, the more
they pay. If that fee were to be due
quarterly or annually, it would look
like an awfully big cheque to sign
and would likely raise even more
questions.
Far better for the franchisee to
get into the habit of paying smaller
sums more regularly, a further benefit
of which being that any problems
highlighted by late payment can be
recognised and dealt with sooner.Q
What’s the most common
mistake first-time
franchisees tend to make?LOUISE HARRIS WRITES:
First-time franchisees frequently
think they’re asking too many
questions. They’ve paid to join a
‘system’ and then forget that, if they
don’t know the answer to something,
it’s not only okay to ask it’s most likely
critical they do.
The whole ethos of franchising is to
learn from the franchisor, so it seems
foolish not to use every ounce of the
advice that’s available.
Franchising is an unusual
relationship. It’s been likened to
marriage and I think that’s the closest
analogy, but in the very early stages
there is, understandably, a parent-
child approach.If the franchisee understands that
the franchisor needs the franchisee
to be successful just as much as the
franchisee needs to be successful, it
should be a win-win.
Taking the view of ‘us and them’
rather than ‘let’s work together’ puts
the relationship in imbalance - both
parties need to have the opportunity
to challenge the other in a ‘safe’
environment. The new franchisee
should generally feel that the
franchisor does know it all and has got
great information to impart - and a
system to follow. And then follow that
system.Q
What type of due diligence
should a prospective
franchisee complete before
investing?SHELLEY NADLER WRITES:
The prospective franchisee should
first assess its prospective franchisor.
Franchise systems will be at different
stages of development and the more
franchisees there are the easier your
task will be, as there will be many
franchisees who you can talk to about
what the franchise and franchisor have
done for them.
Where the franchisor is just getting
off the ground, greater care is needed
in making a choice and you’ll want to
check if the pilot testing has been wide
enough and in sufficient representative
locations over a sufficiently long period.
On the financial side, you should
ask for a copy of its latest audited
accounts and for a reference from its
bankers. You should speak to existing
franchisees - the franchisor should
allow you to choose which ones to
speak to. You should carry out a
company search at Companies House
to check the information you have been
provided with.
You will also need to assess the
business proposition of the franchisor,
including initial and ongoing support
and training provided, details of
how the business is structured and
operational details.
The prospective franchisee will
want to find out the investment cost
of a franchise, initial and ongoing fees
and working capital requirements, plus
figures for profit margins and expenses
based on actual franchise businesses
in the network. You should take advice
from your accountant on any financial
information you’re provided with.ASK THE EXPERTS
Your franchise questions answered by
our panel of industry specialists
BRIAN
DUCKETT
is chairman of
The Franchising
Centre, part
of the world’s
largest network
of specialist
franchise
consultants.JOHN PRATT
is senior partner
at specialist
franchise firm
Hamilton Pratt
and has advised
franchisors for
over 25 years.LOUISE
HARRIS
is franchise
director of
Wilkins Chimney
Sweep. She sits
on the British
Franchise
Association
board and chairs
the membership
committee.SHELLEY
NADLER
is a legal
director in
Bird & Bird’s
international
franchising
team and has
many years’
experience of
advising on
all aspects of
franchising.