Buying a Franchise

3. Evaluating a Franchise

The franchisor should provide a prospectus that answers all the basic questions.

3.1 What is the business?

You need enough detail to give you a broad understanding of the business concept.

• What trading locations or territories are being offered?
• Who are the competitors? A good franchisor should provide a realistic assessment of the competition.
• What steps does the franchisor take to extend and update the business concept?

3.2 Who is the franchisor?

• How long has the business been going?
• How long has it been a franchisor? Many franchisors are members of the British Franchise Association (see 6.1). If yours is not, why not?
• What experience and achievements do the key people have?
• How solid are the franchisor's finances? Ask for three years' audited accounts and a bank reference.
• How many UK franchisees does the franchisor have? If all its franchisees are abroad, or only a few are in the UK, this shows the concept is not well tested in this country. Ask how the concept has been piloted. If it has not, why not?
• How many franchisees have failed? Check the reasons for failures.
• Is the franchisor completely independent? If not (for example, if the franchisor is the UK licensee of a US company), check what the original owner's rights are and how these could affect you.

3.3 How much support will you receive?

• What initial training is provided?
• Will you get help to set up the business? Some franchisors will provide advice on the premises and equipment you need, legal support (eg with planning permission), and so on.
• What continuing support is provided? This can vary widely from almost nothing to full support.
• Can you get help when you need it? The franchisor may have support staff you can telephone whenever necessary.
• Does the franchisor pass on its market research to you?

3.4 What are the terms of the franchise agreement?

• How long will the franchise agreement run (typically five to ten years)? Check whether you have an option to renew the franchise after this time.
• Will you have exclusive rights in your area for the full term of the franchise?
• What conditions and restrictions are there if you want to sell the franchise?
• What happens if you die or cannot continue in business for some reason?