Buying a Franchise: Your Business Territory, Financing & Training Issues

There was a recent incident in a local paper (less than 10,000 circulation) where two franchisees were advertising the same carpet cleaning services. The original franchisee had the area for about 2 years, as a husband and wife team, the new franchisee came into the area with FOUR vans! After a few months the new franchisee disappeared (it should never have happened, but it did).

8d) Premises/Outlet

The need for premises makes any franchise a potential minefield and a dead weight if it all goes wrong. All we will say here is that you MUST be fully committed to the business before buying or leasing an operating space. This is an area for a practiced solicitor (one with shop/office premises purchase experience).

8e) What About Finance?

A number of franchise products are advertised with ‘finance available’, although you may be able to get a better deal from your usual sources, and most banks will have a specialist to talk to. There could be some pressure to use a certain financier “who knows the business well”. If you want to start a business using a recognized franchise and you have an average credit rating you have no need of expensive credit. One area to concentrate on is a deposit towards the initial fee: the higher the deposit, the less you will be paying in interest from your revenue at a time when you need all the cash working for you in marketing, stocks and a living wage. On finance, get an accountant to analyze the set up costs, projected turnover and expenses: a trained eye will spot whether the figures you have are optimistic (probably) or pessimistic (unlikely). Some say, ‘take 50% from any revenue projections and add 50% to the expense projection’ – if these figures prove unworkable then it will be tough to survive.

8f) Do I get Training and Backup?

Some level of training is provided in almost every case. Remember, a quality franchisor wants you to be VERY successful, with your original fee not the objective: that’s not to say that a number of franchisors are not in it only for the original fee! With top franchises you will spend time at a residential course, provided with induction manuals and taken into an existing franchise site where you can look and/or work: with the bottom of the franchise industry posting you 10 pages of poorly copied instructions may be your lot. Training is not just about the product, areas such as accounts, vat, tax, PAYE, stock control, marketing and advertising, employment law – in fact, welcome to the dread of all business ‘red tape’, and lots of it! As to backup, you will want the ability to contact someone with ALL the answers during your early days at least. If things are not going right, you need to be able to call in the franchisor to spot what you are doing wrong or how you can improve. Backup will also be required where goods are involved: are there available spares and how much, what service is available and how much.

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