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.

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.

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.

Yesterday the bank of England announced that it will inject £50 billion pounds into the UK economy.  The goal of the bank is to stimulate bank lending, consumer borrowing and spending. 

The money is being found by a method called quantitative easing.  Quantitative easing is the printing of new money by the bank of England.  The down side of quantitative easing is that it may weaken the pound.  However, the upside is that more vauilable cash will be injected into the economy and may stimulate spending and export sales which is potentially good for UK business, jobs and taxation revenue.

The new money will help create access to cash for investments as well as consumer spending.  Franchise business may benefit as it offers an investment and business opportunity to people wanting to become self employed.

Over the past couple of months in the opening quarter of 2009 consumer confidence has picked up.  The banks are lending again, the stock market has picked up and consumers are spending.

Franchise business often grows robustly in times when job losses are high yet at the same time consumer confidence is improving.  Franchise recruitment growth during such times as this boils down to two key factors.

a.  Loyal hard working achievers are loosing their jobs through no fault of their own and are reluctant to subject themselves to employment again.

b.  There is confidence with lenders, sellers, buyers and consumers which in turn gives franchsie buyer confidence to enter their own franchise business building.

This is a great time to focus on self employment via the proven route of established franchise businesses in the UK.  Franchise buyers should make extensive searches into options available.  They should go though the due diligence required to make well informed decisions before committing their future to their chosen franchise brand. 

Below are 10 tips to help the franchise buyer in their search and decision making process

1. Take a critical look at your strengths and weaknesses – are you sure you have the capacity, temperament and skills to run your own business? Marketing and selling skills are becoming more important in running a franchise.

2. Make sure you have the full support of your family – the additional responsibilities and demands on your time will inevitably cause some strain.

3. Choose some existing franchisees to talk to – don’t just speak to those recommended by the franchisor – and ask how their business is performing and what support and service is being provided by the franchisor.

4. For new franchisors, check they have run a pilot, how long did it operate, is it still trading and what has it achieved in financial terms? If no pilot was operated, how does the franchisor know the franchise and therefore will you be successful?

5. Examine how well known the franchise and its service/product are. A good reputation is a head start in business.

6. Look at the market as a whole – find out who your competitors are and how strong their position is.

7. Examine costs closely, in particular the franchise fee and monthly management fee, and whether they are reasonable and value for money; will the margins be sufficient to support the business after payment of regular fees to the franchisor? As a guide, the average franchise fee is £20,000, although this is skewed in view of a small percentage of higher figures. Ongoing fees average 11.4%.

8. Is the training provided by the franchisor sufficient to enable you to run the business successfully?

9. Seek professional advice from an accountant about income and profit projections and from an accountant about income projections and from a solicitor about the legal agreement. Both should have a good understanding of franchising and preferably be affiliated to the British Franchise Association.

10. Talk to the Franchise sections of the leading banks about the financial aspects of running a franchise and ask them to put you in touch with your nearest area franchise manager. You should also contact the British Franchise Association.