Banks like franchising Why

What is a franchise? In a nutshell, it is the granting of a licence by a business owner to another individual, which allows them to develop their own business using the trademark, name, know-how and business systems of the franchisor. There are a wide variety of franchise opportunities available in the UK across a broad range of industry sectors. Generally most well-established franchise systems offer a tried and tested business model with initial training, ongoing support, brand recognition and the collective buying power benefits that a network of businesses can bring.

Franchising is widely regarded as a less risky way of setting up in business, but it’s worth noting that it will not suit everyone. Following a business system which may include restrictions on products, services and suppliers may be unattractive to some entrepreneurs who are looking for more independence. There are also limitations as to whom the business can be sold on to, as the franchisor will need to approve the buyer.

Franchises are not immune from reputational damage either. Neighbouring franchisees delivering poor service or indeed problems with the franchisor can all pose challenges. Anyone considering franchising should thoroughly research the options available to them before making any commitment.

When considering whether franchising is the right option for you, one of the first decisions you need to make is what type of business you have an aptitude for - and what would you enjoy. Running your own business takes a lot of hard work, possibly long hours and a great deal of self-motivation. You must be prepared to follow the franchisor’s business system and accept their terms. It almost goes without saying that you should only consider investment opportunities that are within your budget.

Don’t forget the impact that setting up a business will have on your family – and try and make sure you have their support before you take the plunge. Common sense will take you a long way in deciding whether the franchise you are considering will prove right for you. Investing in a franchised business requires careful consideration as your ultimate success depends not only on your individual actions, but also on the business decisions taken by your franchisor. That makes it even more important to judge their business, its track record and available support before deciding whether to invest.

Finally, don’t be pressurised into signing an agreement before you are ready to do so. Getting involved in a franchise is a big decision and it’s vital you understand exactly what you are getting into. Find lawyer who understands franchising and ask them to take you through the franchise agreement step by step, so you understand what it means. The British Franchise Association (bfa) provides a list of affiliated lawyers on its website www.thebfa.org as well as listings of franchisors that are members of the Association who comply with a Code of Ethics. Lloyds TSB has produced a helpful guide to support your research and provides a list of 35 key questions you should ask a franchisor. A free copy can be obtained through the bank’s Franchise Unit by using the contact form below.

Latest industry statistics show that franchising contributes £10.8 billion to the UK economy. The robust health of the sector is further demonstrated by the very low levels of commercial failures and the fact that nine out of ten franchisees say that their business is profitable. Failure amongst business starts ups is reported to be significantly higher and consequently franchise focused banks such as Lloyds TSB offer preferential banking services and finance terms to franchisees.

Top Tips

• Thorough research of a franchise opportunity is vital when making probably one of the most important decisions in your life.
• Attend one of the British Franchise Association franchisee seminar days which provide an unbiased view of the benefits and pitfalls of investing in a franchise.
  
• Get the Lloyds TSB guide ‘Supporting your franchise business’ which contains 35 key questions to assist you with your research.
  
• Be prepared to walk away if the franchisor just seems interested in taking your investment and does not ask you searching questions about your own skills, attributes and motives for setting up as a franchisee.
  
• The franchise agreement should be fully explained to you and checked by a British Franchise Association affiliated lawyer before signing.