As an ex franchisee myself, and someone who is not paid by the Franchise industry, here is starter for ten on some of my top tips for potential franchisees who may be considering investing in their first franchise;
- Take time to complete your due diligence (Blog link here) because the Franchisor will only willingly tell you what it wants you to know. Use the sample due diligence questions here to help compile a list of questions and get answers in writing from the Franchisor prior to signing any agreement. Ask for a list of current and past franchisees and get permission to speak to any of them, not their chosen ‘stars’. Make sure you ask them ‘Knowing what you know now, would you invest again?‘. Do not let your heart get the better of your head because this could be the single biggest decision you make in your lifetime. I will be covering this critical topic in a separate blog.
- Get behind the façade and really understand the culture and values (Link to blog here) of the Franchisor and its people because unlike a job, once you have signed the franchise agreement, you are stuck with the consequences for the length of the franchise agreement which could be 5, 10 or 15 years (see my earlier blog on this topic). Believe me and the countless other franchisees I have connected with, there is nothing worse than being stuck in a franchise that you do not enjoy. Sadly, even if you are happy with the current culture and values, this could change overnight if the owner or leader changes, which you have absolutely no control over.
- Make sure you understand how the Franchisor makes its money (see my earlier blog on this topic here) and that there is complete transparency around any commissions / kickbacks / discounts etc. it receives that they will not pass onto its franchisees. It is really imperative that the pricing of any products and services you are contracted to purchase for the lifetime of the agreement are competitive. Use the John Lewis slogan ‘Never Knowingly Undersold’ to get a commitment in writing from the Franchisor. This is really critical because if you buy badly from the Franchisor your ability to make margin from customers will be compromised. Keep an eye out for my next blog on this exact topic.
- Talk to as many recent franchisee joiners as possible about their experience regarding profitability (not turnover) and make sure it stacks up with what the Franchisor is saying. Make sure you understand what is included and more importantly what is not included in any profitability numbers because, after all, you need some income to survive and you need to make a return on your investment!
- Are you really cut out for what it will take to be a successful franchisee and is the particular franchise you are exploring something that will get you jumping out of bed in the morning? Franchising is extremely hands on and will involve you doing things that you probably never realised you would! It will also literally consume every waking hour for many years if not the whole length of the agreement. Ask the Franchisor to spend a day (or three!) with some existing franchisees going through a full ‘day in the life’ of a franchisee. Is the nature of the business something that will excite you every day for the 5 or 10 years or whatever length the franchise agreement is? See my earlier blog here where I lay out a simple 5 step process for completing your due diligence.
- Take time to read every bit of detail in the franchise agreement and make sure you are happy with the absolute worst case scenario, because believe me franchisees fail way more often than any Franchisor will ever own up to. See my earlier blog here on ‘Are Franchise Agreements Ethical’ where I go into quiet a bit of detail on what to look out for in franchise agreements but please please avoid any franchisors that include a liquidated damages clause because I believe this is used both as a negotiation tool when issues arise but worse still to ‘screw’ you if the franchise fails. In my view, liquidated damages clauses as I have witnessed with multiple franchisors are designed to be a penalty and would be unenforceable in a court of law. Consult a franchise lawyer, preferably one that is not in bed with the Franchisors (which is currently difficult to find in this country but will hopefully change) because you know which side of the fence they are on, and really do listen to their advice. Despite what some Franchisors say, a ‘side letter’ (to the franchise agreement) is quite common in the franchise industry and therefore if there is something you want addressed, get it in the side letter.
- There is NO regulation of the franchise industry in the U.K. unlike most developed countries and therefore if you encounter an ‘unscrupulous and dishonest Franchise’ with a one sided Franchise agreement, all the power is with the Franchisor and you could lose absolutely everything. Don’t be lulled into a false sense of security with the franchise associations because they mainly provide an advisory role which Franchisors can choose to ignore. I will be covering this really critical topic in a later blog.
- Finally, if you decide to go ahead after doing all your due diligence, please please please only sign the franchise agreement yourself and push back on any pressure to get your souse or partner to also sign because this could come back and haunt you in a terrible way at a later stage. This does not prevent you from having multiple directors of the company/vehicle you use to run your franchise business.
Details about the author and his experience of being a Franchisee can be found here. Just to be clear, the authors’ views expressed in this blog are exactly that….his views, based on his personal experiences, by connecting with many current and past franchisees of many different Franchisors and through his own market research.
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The Perils of Franchising 
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