Career Doctor Articles

With the kind permission of the Career Doctor, jfo is able to bring you a series of articles to help you in your work situation and longer term career management

Starting a Business Franchise

The usual starting point for someone wanting to become a franchisee of a business is either the person has been made redundant, has a lump sum as a result, and wants to buy a business and become his / her own boss - or is tired of being told what to do, feels that self employment is the way forward and wants to set up his / her own business, but with less of the risk associated with “going solo”

Either way, the attraction of being your own boss is compelling, and there are many beguiling stories of how someone with a modest background has started as a franchisee, become a millionaire and now employs many people in a thriving business.

In this article I am going to look at the upside and downside of becoming a business franchisee, for there is a clear need to go into a franchise with your eyes open. The expression “a fool and his money are easily parted” is very appropriate.

FIND THE RIGHT FRANCHISE

I am assuming that you have made an initial decision to investigate the possibility of becoming a franchisee, but what exactly does this entail. What is a franchise? In simplistic terms a well established business offers selected people the right to trade under its name, using its products, to its trading methods. The parent company (franchisor) will train you (the franchisee) in its methods and systems and will support you with services such as supplying stock, advertising, marketing, product development, and technical / financial advice. A ready-made business in a box.

The reason why becoming a franchisee is so attractive is that it minimises the commercial risks, gets you off to an established start, and you get professional support to help you make a success of your new business. That is why a franchise will give you a statistically greater chance of becoming a successful business-person than if you try to set up your own business from scratch.

I started up in career consulting in 1990 as a franchisee of a major national company, was trained and supported by them in the early years, and eventually set up my own business, independent of them. I am totally convinced that if I had set myself up as a one-man band, knowing nothing about this type of work, I would have gone out of business years ago. So, I practice what I preach!

There are many books, magazines and fairs about franchising that you can use to research what is available. In general, franchising follows certain themes and some business sectors are more attractive to franchisors. The main sectors favoured by franchisors are: cleaning, printing, fast food, car hire, petrol service stations, agencies (recruitment, estate, travel and dating), cash conversion, repairing (cars, bathrooms, furniture), parcel couriers and photograph processing.

In addition there are many unusual franchises such as selling / installing fire places, key fob making, greeting card provision, etc. The main franchise magazines have many advertisements for franchise opportunities, and a walk around a franchise fair is a real eye-opener. I would recommend that you pick the franchise that most meets your business needs and is nearest to your skills and experience. As a former Human Resources Manager I think I would have been out of my depth running a pizza delivery service, especially as I know nothing about cooking!

Of course, to some people, the sheer challenge of doing something they have never done before, and about which they have no relevant experience whatsoever is quite an adrenalin rush. However the more reputable franchisors will select the most appropriate people to become franchisees, and so some relevant experience would be a distinct advantage.

THE FINANCIAL ASPECTS

Naturally buying a business in a box is not cheap. Setting up a new fast food restaurant, for example will cost you well over £100,000 for the franchise and possibly up to £250,000 before you are fully operational. It will be you who has to pay for the building, ovens, kitchen facilities, seating, etc, not the franchisor. Put your money where your mouth is!

Some franchises are much cheaper and there are many which only charge about £10,000 to £15,000 for the franchise rights, use of their name, advertising and support, etc. So shop around and see what you can afford.

You have to remember that laying out the money to buy the franchise rights is only the start. Thereafter you may have to purchase a vehicle (or several), perhaps rent a shop and have it converted to the specification of the franchisor. Then you will have to buy other specialist equipment, and supplies of stock. Perhaps your franchise will require you to recruit some staff and they will want their salaries paid, irrespective of how well your new business is doing.

Most franchisors will tell you that it will take some time before you could expect to be in profit. Your new business will have to become established and known in the neighbourhood, and sometimes this means that you will be operating at a loss - perhaps for up to a year! And all the while you will have to take some money out of the business to pay for your own mortgage, food and all the other essentials of life. So the first 12 months of a new business can be quite a harrowing time from a financial point of view.

MAKING THE RIGHT DECISION

So, you have chosen the right franchisor for you, found the money to fund this new venture, but before you sign up, get some professional advice - which will also cost you. Employ an accountant to examine the financial predictions and track record of the franchisor, and get a solicitor to examine the legal aspects of the franchise contract. There are many accountants and solicitors who specialise in franchises, and it would be your money well spent to safeguard you against a potentially expensive mistake.

Starting up a franchise should involve the production of a business plan, and this is sometimes supplied by the franchisor. If not you should produce one, to safeguard yourself if nothing else. There are books available to help you do this. If you need to approach a bank to seek a loan to help start up your new franchise, they will insist on a business plan, which they will examine carefully. This will protect you as well, just in case the predictions and assumptions in the business plan are a little on the optimistic side, or you have failed to allow for a certain operating costs.

You need to bear in mind that the franchisor has to make the right decision as well, and the more reputable franchisors will interview you carefully and will only select those would-be franchisees who, in their opinion, have a better than average chance of success. So even if you have sufficient money to start up their franchise, it is by no means certain that they will accept you.

Another factor to take into account before signing up to a franchise is the town where your new franchise will be. Just because you live in Reading it does not mean that you can set up your new franchise in that town. Perhaps there is already a branch of the franchise you have chosen in Reading, so you might have to find another town. This might be to your advantage, or it might not.

I have considerable experience of advising clients about franchising and self-employment, but they have to make the final decision themselves. I had a client who decided to become a franchisee of a dating agency, but the only territory left was based in Guildford. Against my advice she signed up, spent many thousands of pounds of her own money, and went out of business 18 months later. Wrong business (killed off, predictably, by competition from the internet) - and wrong location (too many green fields nearby and not enough potential clients base).

I could have said “I told you so” but we worked together to help her return to being an employee once more. A sader but wiser woman. At least she tried though.

TAKING RISKS

A franchisee is, by definition, an entrepreneur or risk-taker. Without this trait, you are almost doomed to fail, for there are commercial risks in starting up any new venture, no matter how famous or well advertised is the franchisor’s brand name.

The path from being an employee to being a franchisee is a long one with many pitfalls, You can choose the wrong business activity, the wrong franchisor, the wrong location, the wrong staff, the wrong vehicles / equipment, and have insufficient funds to finance the venture properly. But more importantly if you are not a risk taker, you will probably fail, even if you make all the right decisions about franchisor, location, etc.

Being the owner of your own business means working longer hours that you ever have before. It means that you have to be very flexible, from serving the customers, to covering from an absent driver, to preparing the accounts, to cleaning the floors, to making decisions about marketing campaigns, hiring and firing staff, dealing with VAT and income tax returns, and in general being able to do anything and everything. You will never have the time to be bored, and you will never have worked so hard before.

Perhaps such a challenge excites you, but to others this will sound too daunting. However to be a successful franchisee you must also be a risk-taker. Fortunately this is an easily identifiable trait and one which our psychometric tests will immediately identify. So as all our clients complete two psychometric tests we can advise you whether or not you have the potential to be a franchisee. In my next article I will be discussing psychometric tests in greater detail.

Good luck!

The Career Doctor is Eric Hearn, Chartered MCIPD and Managing Director of Milverton Career Solutions Ltd, Ascot, Berkshire, UK.

Contact details:
Tel: 01344 624383
Email: milvertoncareers@btconnect.com
Website: www.careerdevelopment.co.uk