Franchising is a winning formula for budding entrepreneurs looking to gain a first foothold in setting up their own business.
The latest research by Bibby Financial Services has revealed that over a quarter (26 per cent) of franchisees claim to have no cash flow problems whatsoever.
Of those franchisees that do occasionally need additional funding to improve their cash flow situation, 42 per cent resort to using their own personal savings. This suggests that franchisees are not suffering from the funding gaps experienced by their other small business contemporaries.
Just 9 per cent of franchisees are currently relying on a bank overdraft or loan to assist their cash flow, whilst 5 per cent use factoring or invoice discounting to fund their business.
With a recent nationwide survey claiming that a significant 91 per cent of franchisees* claim that they made a profit last year and the success rate for franchised firms topping 90 per cent, it is clear that franchising remains a safe bet for aspiring entrepreneurs.
In order to help potential franchisees avoid some of the pitfalls associated with taking the plunge into franchising, David Robertson, Chief Executive of leading finance firm Bibby Financial Services has developed a series of top tips.
Top Tips on franchising:
(1) Do the detective work ñ research the opportunity thoroughly. This includes investigating the market, sizing up the competition and evaluating long-term prospects.
(2) Consult the specialists ñ learn as much as you can about the industry from as many different sources as possible. Contact the British Franchise Association for more information (www.britishfranchise.org.uk) or www.whichfranchise.com and read the national and trade press for further advice.
(3) Visit the franchisor ñ exercise your visitation rights and meet with the
franchisor. Glean as much as you can, including how other franchisees are doing, what support is available for franchisees and seek clarification on anything that is not clear from the prospectus.
(4) Donít take things at face value ñ look for factual evidence that
everything the franchisor says is true and donít make any assumptions, if in any doubt ñ ask!
(5) Meet the franchisees ñ visit at least two franchisees to find out what
itís really like to run the franchise. Ask them how business is going and what the risks and opportunities are.
(6) Planning makes business sense ñ prepare a business plan, just as
you would with any start-up business based on your market research and your own financial projections.
(7) Do your sums ñ assess your expected financial performance carefully
and be aware that existing franchisees may achieve higher returns if they are already operating in the most profitable territories.
(8) Sort out your finances ñ make sure that you have adequate financial
backing. Some franchisors have relationships with banks that offer special funding packages. Local enterprise initiatives may also supply start-up finance.
(9) Seek legal counsel - never enter into any franchise agreement
without legal advice and use a lawyer specialising in franchising matters.
(10) Check out the small print ñ Make sure that you check the terms of the franchise agreement including how long the franchise agreement will run and whether or not you have the option to renew the franchise after the agreement has run its course.
David Robertson, Chief Executive of Bibby Financial Services said, ìThe franchising industry makes an immense contribution to the UK economy. With turnover at a record high of 9.5 billion and over 326,000 people earning their living from it, the franchising sector continues to go from strength to strength.
ìCompared to starting up on your own from scratch, franchising provides a relatively safe route. The franchisee inherits tried and tested systems that eliminate the potential for costly mistakes including a successful business concept, proven marketing methods and an established brand identity.
ìHowever, it is not a get rich quick solution and there are risks involved. Potential franchisees need to go into it with their eyes open and carefully research all their options before signing on the dotted line.î
Franchising: A Winning Formula
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