When considering a business acquisition, the easiest option for many purchases is that of a franchise. Whilst the opportunity may appear to be great, it is important to do your due diligence prior to committing. This includes the following:
- Is the business in a growing market segment?
- Will your location be in close proximity to other franchisees / competitors (bearing in mind in some industries business ‘clusters’ can be advantageous)
- What will the rent be? And if in a shopping centre, will the benefit of foot traffic outweigh the additional costs (most shopping centres will have reports comparing foot traffic amongst centres)?
- Is the premises the right size? Is there room to grow should business go well (relocating is an expensive process!)? Are you paying for space you don’t require?
- What level of support is provided by the Master Franchisor?
- What royalty is paid to the Master Franchise? Is this off the top line or bottom line? And can it be negotiated?
In general, franchises are beneficial when there is a large brand awareness, and a loyalty to the brand. This implies a certain proportion of customers will gravitate to you over competitors.
There are also additional benefits of purchasing franchises such as access to dedicated Business Development Managers to assist in the running of your store, and bulk purchasing discounts. Additionally, some lenders have dedicated franchise lending products (with approved franchises) – which mean borrowing for a franchise compared to starting your own business may be easier.
Prior to making a decision, it is advisable to speak to other franchisees – of your choice. Understand their experiences, both good and bad. And make up your own mind.
If you would like to obtain a checklist to utilise if considering a franchise purchase, please contact the team at Flexible Capital and we will provide this to you at no cost.