House price rise gives options for franchise buyers
Nick Strong - Franchise recruitment advisor
According to the Nationwide, the average price of a home is now £160,224, up from £158,871 in July. While prices are still lower than last year, the annual rate of decline in property values slowed sharply to 2.7%, compared with July’s 6.2% fall.
Clearly house values can go up as well as down. We have seen this during the current economic climate and the current rises may be due to reduced stock available. However, the rise in house values may be a boost for confidence to lenders and borrowers considering buying a franchise.
In addition the UK government has actioned its plan to guarantee £20 billion of small and medium loan guarantees. Banks and thier franchise departments have respond positively to lending to franchise business.
The banks are keen to work with proven franchisors and well prepared franchise buyers. As far as the banks are concerned a proven franchise business is one that fits at least the following criteria:
- Ideally the franchisor will be a member of the British Franchise Association
The bank will have a good and open relationship in existence with the franchisor
The bank will be happy with the franchisor’s financial performance
The bank will be happy with the franchise buyer’s financial history
A preferred franchise buyer for the banks is a person, partnership or business that has a well prepared business plan. The plan will demonstrate the franchise buyers understanding of:
- The market they are wanting to enter
Local competition
Substantiated argument for potential projected revenue claims
Why the franchise is right for them and the territory being offered
How the franchise buyer plans to secure the loan funding
How much liquid capital it will require to run the business
How the new franchisee will manage cash flow and personal living expenses during the first year of trading
The banks are very keen on lending to new and existing franchise business because the NatWest/BFA franchise survey confirms that year after year that over 90% of UK franchisee run businesses are profitable. That means that a new franchise business have over 90% success expectation which is by far better than the statistics of go it alone entrepreneurs.
Franchising is a proven way to increase personal succcess in self employment. The banks like it and in many cases franchise funding from the small business loan guarantee scheme may be used during 2009 to fund franchise business development.
For research of franchises for sale and expert comment visit www.SelectYourFranchise.com.
Legal issues when buying a franchise
Nick Strong - MD, Select Your Franchise
In the light of my recent articles on What is a franchise and Researching your franchise options, its clear that the most important thing a franchise system can offer its franchisees is its know-how. The franchisor’s intellectual property is therefore a closely-guarded secret only revealed to its franchisees, and you may be asked to sign a confidentiality agreement during your discussions with a franchisor.
When you buy the rights to operate a franchise, you will enter into a contract. The contract will be provided by the franchisor and will outline how your trading relationship will be governed.
The signing will not usually happen until after ‘due-dilligence’ steps have been taken (background checks, financial and otherwise) on both sides and it is agreed that both parties wish to proceed.
After completing the due diligence process, you should know whether you wish to proceed as a franchisee of the system you have been investigating or not.
Before signing the contract, check the following:-
- Is there a deposit to pay?
- What happens to the deposit if you do not finalise the contract?
- When will the training take place?
- When will you have to sign the contract and pay the balance of the franchise fee?
- When will you be in a position to trade?
- How will the franchisor help you lanuch your new business?
- What programme of support will be provided over the first 12 months?
The contract will outline what the franchisor agrees to do for you and what you will have to do for the franchisor.
All franchise contracts will be biased in favour of the franchisor – it is their intellectual property you will be using. It is a way of protecting not only their interesrts by the whole network’s interests too.
Once you have satisfied yourself that you have all the finormation you require to work with the franchisor, talk to your lawyer and lender to make sure you are in a position to sign, train, and start rading on the agreed timesalce with your franchisor.
House prices rise could help franchise buyers
During May 2009 the value of houses in the UK rose. This could be useful to anyone thinking of buying a franchise as the general rise in pricing may give banks more confidence to lend against equity in the home owned. Clearly this is only one month and an upward trend will need to seen over time to bring true confidence to in house values to owners and lenders.
House prices rose 1.2% in May on April, offering evidence of activity in the UK housing market, according to figures from the Nationwide building society. The annual rate of house price falls eased from 15% in April to 11.3%, with a typical home now costing £154,016. Over the past three months, house prices fell by 0.5% compared with the previous three-month period, the lowest quarterly drop since January last year.
The housing market continues to offer opportunities for UK franchise buyers and owners
Fewer properties are coming onto the market as many sellers choose to rent their properties to tenants, rather than try to sell them in a depressed market. This has helped stabilise the ratio of sales to the unsold stock of properties on estate agents leading to some of the price rises in recent months.
This good news for lettings franchises such as Belvouir Lettings and Watson Mitchell Blackburn (to read more about these franchises visit – http://www.selectyourfranchise.com/uk/franchise-directory/Lettings-Franchise.html).
While the home sales market has suffered badly in 2009 the lettings market has strengthened. This is because of increased stock availability and an increase of people needing to rent. Reasons for the increase in the rental market include people having to exit ownership or being unable to enter into ownership due to tightening bank finance requirements from lenders.
