BUYER BEWARE
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that. Franchising has its household names, such as Interlink, TNT and ANC, but it also has its fair share of unscrupulous companies waiting to pounce on the vulnerable.
The British Franchise Association has recently changed its membership criteria to try and squeeze out fraudulent practices. Businesses will now have to provide confidential data to qualify for membership as well as accept tough disciplinary procedures, says the BFA.
Just being aware of industry cowboys is not enough. If you are seriously considering taking out a franchise it is essential to research it thoroughly.
So what should an operator look at before signing on the dotted line?
First you should take objective, inde
pendent advice as you will be making a large investment — anything from i.3,000 to more than .2200,000. Consider the return on your investment and compare it with other franchises and even building societies.
Look hard at the franchisor. The BFA stresses: "Do not assume that because someone calls himself a franchisor it means that he really is one".
Get a list of existing franchisees and visit some which work in similar areas to yours. From their experience you will know what sort of support to expect from the franchise firm.
Look at how the business is structured and find out the history of the firm. You should not be afraid to ask about the experience and background of the firm's directors or if they have ever been involved in a business failure — especially any flopped franchise companies.
Find out what services the franchisor offers, such as training. For some this can range from an information pack or an hour's training to a full week's course and follow-up training for franchisees and their staff. And sort out who is expected to pay. Remember to ask what services will be provided once the franchise is up and running. These could include field sales support, business advice, negotiation of bulk buying terms from firms such as manufacturers, vehicle market research, and advertising. Also study the business and find out whether it is seasonal or how it is coping under the current difficult trading conditions.
The BFA tells operators to look for danger signals which could indicate the need for more scrutiny. These warning bells include heavy initial franchise fees and franchisors whose continuing fee income is too low to support the services which they should provide. Also beware pyramid-type schemes. These systems involve the sale of an area. This purchase can then be sub-divided and resold to people recruited as sub-distributors.
Avoid contracts which are vague and lack detail or franchises which are based on passing fads or fashions which could be short-lived.
The BFA also tells people to be wary of franchisors who have no pilot operations, fee arrangements where you have to pay a minimum rued cash sum regardless of sufficient business coming in; or a franchise consultant offering objective advice but who really is selling franchises on a commission basis.
by Tanya Cordrey