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Choosing the right path

Investing in franchises

It may not be immediately obvious to you when looking at the various opportunities but there is more than one way of establishing a franchised business. In fact, there are at least three different routes available to you to consider when starting out in business with a franchise.

The straightforward way of entering the franchise industry and joining a franchised network is to start from scratch with a new ‘greenfield’ operation. Decide upon your level of investment and available working capital then look at the business sectors that both interest you and are affordable. To filter your options further, meet franchisors within that sector to find the ones with the right approach and support system for you. Then speak with a selection of their existing franchisees to refine your selection down to the one that is right for you. As they say on a certain TV advert: simples.

A slightly more complex way of becoming a franchisee, though one that may be more cost effective for you, is to buy an existing franchised business from an existing owner – a resale.

A resale is slightly more complex because you are considering both the franchisor’s offering and the detail of the business you are considering buying. It can be more cost effective because you should be able to get faster growth, as you are not starting from a zero base. The business is already trading, which means there will be cashflow and customers from day one and this provides an opportunity to drive the sales growth faster. 

Any additional complexity need not be a problem if approached in the correct, structured manner. It is important you are provided with all the information you require to make a considered decision. This does not mean just a set of accounts and some sales bumph about the franchise; you should receive a structured prospectus of sale detailing the history of the business, the marketplace in which it operates, the scope for growth, the specific costs of the business (including staff and property if applicable) as well as receiving the financial accounts of the business.

That covers buying a new franchise or buying a resale. What other options are there? Obtaining funding for resales need not be difficult. Most banks like investing in franchise resales because they can be far more secure than a new start-up business and the legal process, equally, can be smoother. In both cases, the secret is in using specialist franchise professionals who are affiliated to the British Franchise Association (bfa). Don’t just pop into your local high-street bank; contact the national franchise unit. Don’t use the solicitor who did your house conveyancing or your will, use a franchise specialist; see for details of these under the Professional Advisors section.It would help to have this provided by either the franchisor or a specialist franchise firm who understand the way the business operates and also how the specific franchise system works. You are not only looking at the local business to buy but also the franchise network so it is beneficial to have someone who can advise on both aspects rather than just introducing the local business for sale.

Surprisingly enough, there are also franchisor networks available for sale and these need not be priced out of your option range. Clearly, to buy a huge established network of trading franchisees is not something most people looking at franchising would consider, but depending on your skill set, motivation, objectives and available funds, you could consider small franchisor networks or master licences in your decision-making mix. 

Becoming a franchisor requires a different mindset to becoming a franchisee and much will depend on your goals as well as your ability to motivate and lead people. As a franchisor, your main interaction will be with your franchisees, whereas being a franchisee means your main interaction will be with your customers or clients. Naturally, money will play a part but there are modestly priced businesses – both small franchise networks and master licenses – currently available for sale. There are also skilled bfa-accredited professional consultants who are available to help you take on and develop a franchise network. As with the banks and solicitors referred to above, I strongly recommend only working with bfa-accredited consultants and originations and, again, visit the bfa website for details. 

Consider all your options: starting from scratch with a new franchise, buying a resale opportunity with its inherent opportunities for rapid growth or even becoming a franchisor with a small network and developing a national business – something to think about!

Derrick Simpson is managing director of Franchise Resales.