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The Practical Steps to Becoming a Franchisee

 

Alan J Gibson, QFP, FCMI, is an experienced franchise consultant with The Franchising Centre, a team that helps people turn their businesses into successful franchises. In his previous article, he provided us with tips on how to find the right franchise for you. 'Play to your strengths', 'look in the mirror', 'choose with your head as much as your heart'...now all that contemplation is out of the way and the franchise hath been chosen, he gets down to business and explains what the practical steps are for getting yours up and running:

According to the latest government figures there are over 4.9 million small to medium size enterprises (SMEs), 4.7 million of which are classified as micro businesses with nine or less employees. SMEs are the bedrock of the UK economy with over 500,000 new businesses being registered each year.  

Registering a small business

However it is not all good news. According to a recent survey, a staggering 45% of newly registered SMEs will fail before reaching their third anniversary. Franchising offers prospective business owners a 'proven', successful business format and system backed up by the training, development and support of an experienced franchisor. Once you have found your ideal franchise, the following steps outline the key stages you should expect in securing that franchise opportunity and starting the process of setting up your new business.

 

For further information on finding your ideal franchise, take a look at my previous blog 'How To Find Your Ideal Franchise'.

 

The Franchise Offer

Once franchisor and prospective franchisee (you) have undertaken sufficient due diligence on each other and have made sure that the business opportunity is right for both parties, you should be issued a formal offer in return for a deposit payment, to demonstrate commitment and commence the 'pre-start programme'. You will also be given a draft copy of the franchise agreement to review; your territory, if applicable, will be confirmed; and the next steps of the journey will be detailed.

 

Build Your Team of Professional Advisors

Once you have received your franchise offer, it's time to think about putting your specialist team of advisors together, including the following:

  • Accountant – who will advise you on setting up your company utilising the most appropriate trading format, and assist you with tax planning and financial management for your business.
  • Solicitor – to check the franchise agreement and advise you on legal matters.
  • Banker – to provide funding for the business and ongoing banking services.
  • Coach/mentor/advisor – to provide you with independent advice and coaching to enable you to make the most of your business opportunity.

 
Build the best team of advisors you can with people who you get along with and trust.

 

Checking the Franchise Agreement

The vast majority of franchise agreements will be non-negotiable; however, I would always recommend that prospective franchisees get the agreement checked by a British Franchise Association Affiliate Solicitor, hopefully already identified in your advisor team. This checking process should be seen as an investment to ensure you are fully aware of the key clauses, obligations and responsibilities contained within the agreement. The review will also confirm whether or not the franchise business has been constructed on ethical foundations. If any alarm bells start ringing this is the stage to raise them with the prospective franchisor.

The Practical Steps to Becoming a Franchisee

Many people will say that once the agreement has been checked and signed it should be kept in a drawer and only referred to if there is a problem. I don’t believe that is good advice, as I recommend franchisees regularly read and review the franchise agreement, throughout the term of the franchise, to make sure they are meeting all of their obligations and responsibilities and that the franchisor is keeping their promises also.

 

Further Business Planning

The preparation of a robust business plan is a key element, not just for evaluating the franchise but for securing funding and for mapping out the future targets, goals and objectives for the business. The plan should cover key areas such as vision, mission and values, SWOT analysis, territory and competitor analysis, client/customer profiling, pricing, team recruitment development and management, marketing and sales, risk analysis and a full financial analysis.

 

Your business plan should be a living document reviewed and updated on a quarterly basis, with the help and assistance of your trusted advisors.

 

Securing Funding

If you are seeking funding for your business from the main high street lenders specialising in franchising make sure you are prepared for the application process and your pitch. The bank will commonly be focusing on the following key areas of your application and plan:

  • Character – assessing your trustworthiness.
  • Capital – assessing your assets against the amount being requested.
  • Capability – analysing your skill and capabilities and the likelihood that your plan will succeed.
  • Purpose – assessing whether or not the purpose is appropriate and achievable.
  • Amount – calculating the amount of lending.
  • Repayment – assessing how long the loan will take to be repaid.
  • Terms – defining the interest and repayment terms.
  • Security – identifying a secondary repayment source.

 
Practice your pitch and make sure you know your business plan inside out. Expect to be quizzed on its contents.

 

Signing Your Franchise Agreement

The culmination of all this activity will be the formal signing of the franchise agreement with the franchisor. This is the point at which you will become a fully-fledged franchisee and your journey will start in earnest with the development of your pre-start work programme including scheduling your initial training and development plan, organising your sales and marketing activity, and preparing yourself and your business for the first day of trading.

Following the above key stages will help you significantly increase your chances of setting up, developing and growing your own successful business utilising the proven business format and system of an ethical franchisor.

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