Hamilton Pratt

Franchisees

Preparation

Franchisees  should possess the following characteristics (in  order  of importance):

  • Willingness to work hard;
  • Desire to succeed;
  • Management ability;
  • Financial backing;
  • Strong “people” skills;
  • Support from family.

Franchisors should expect prospective franchisees to make all appropriate checks in order to assess fully the franchise which they propose taking before they commit themselves contractually.  Franchisees will usually require to be satisfied on the following issues:

  • Is there a demand for the products/services to be franchised and do the products/services have “staying power”?
  • How long has the franchisor been in business and what is the franchisor’s record of profitability?
  • How many other franchisees are there, how many have had their franchise agreements terminated and what is their profitability record?
  • How efficiently does the franchisor handle an enquiry for a franchise?
  • How strong is the competition?
  • Is the franchisor a member of or has it applied for membership of the British Franchise Association?
  • Are the usual providers of finance prepared to finance the franchisee?
  • Is the franchisor “choosy” about the sort of people it accepts as franchisees?
  • Has the franchisor used a recognised franchise consultant and franchise lawyer in the preparation of its franchise?

Financing a Franchise

The average initial investment is approximately £43,500.

In addition franchisees must pay management fees/royalties/service fees  (on average 7.1% of turnover),  a contribution to advertising (on average 3.6% of  turnover) and a mark up on goods or services supplied.

It can be seen from the above that franchising is by no means an inexpensive way to begin in business.

A significant majority of franchisees seek finance from banks or other external sources.  The names and addresses of the clearing banks with franchise units or franchising expertise are set out in the Appendix.

Many franchisors have made arrangements with banks for the provision of finance to prospective franchisees.  In these cases bankers will often require an informal understanding with the franchisor not to terminate a franchise without informing the bank, and require that the bank be informed when a franchisee is in breach of his franchise agreement.