Over half of franchisors advise us that recruiting franchisees is their biggest barrier to growth, given the stable economy and the range of franchises now available.  New franchisees, on the whole, are making a positive decision to start their own business by purchasing a franchise, rather than being forced into a new direction following redundancy.

Taking your time to select the right franchise is imperative.  Franchisors may offer attractive incentives for a decision to be made quickly.  We recommend that this is not taken up, at least not until all your investigations have been carried out.

Before signing any legal agreement, or making a financial commitment thorough research is vital.  You must satisfy yourself that your chosen franchise is a proven well-established concern with a proven track record and satisfied, successful franchisees.  To find out if the current franchisees are satisfied with the support provided, obtain a full list of the franchisees.  The named list should match the number of franchisees the franchisor states they have.  Any less and they may be providing you with a list of the satisfied, or good performing franchisees only or they have misled you in the number of franchisees they have.  When you have the list speak to as many of the franchisees as possible to gauge what they really think about the franchise and the training and support they receive from their franchisor.  It is also a good idea to visit franchisees to get a better understanding of the way the business operates at first hand.

This is not as easy with a new franchise, particularly if you are their first.  In this instance you must satisfy yourself that the franchise has been piloted and the results provided to you.  The franchisor should also have, or used, people with a proven track record in establishing a new franchise.  The management must also have experience in their industry.

Always seek appropriate professional advice including a suitably experienced solicitor that is affiliated to the British Franchise Association, who will be able to explain the clauses in the legal agreement to you.  It is unlikely that the franchisor will amend any of the clauses, but you should be aware of the implications of them.  To use an analogy, you should not buy a house without a survey, so do not buy a franchise without having the legal agreement checked.

An assessment of the franchisor’s financial stability should also be undertaken, to ensure that they have the funding to support the franchise network.  You can do this by asking your accountant to review their accounts or by obtaining a status enquiry on the franchisor through your own bank.

NatWest lends to franchisees through a network of specialist Franchise Managers, who are based in local business centres across the UK.  They have a detailed understanding of franchising and mix this with the knowledge of the location in which they operate.  We run regular workshops with them to ensure their knowledge is up to date.

When dealing with a potential franchisee the Franchise Manager will want to know not only which franchise you want to purchase but details about yourself, as it is the individual and not the specific franchise that we assess.  This is because your success will be determined by the amount of commitment and enthusiasm of you.

The Bank will lend up to 70% of the total start-up costs for a franchise, although this may be nearer to 50% for a less established concept.   In view of the likely amount required, security, such as a second mortgage on your home, may be required.  This will be discussed with you during a detailed meeting. 

Before we are willing to lend, a business plan will be required and should include details about the franchise, the costs, the sector it operates in, their competition, both locally, regionally and nationally, your CV, your assets and liabilities and projected financial information.  The Bank’s Business Software, including a template business plan will assist in drawing up your own plan.  If you are buying an existing franchise business we would like to see the actual financial performance; the last 3 years would be helpful.

Many franchisors will assist in completing a business plan, however our Franchise Manager will expect you to know and understand the various statements and financial figures it contains.  There will undoubtedly be questions about parts of your plan.  The financial information, particularly the forecasts, will help you to assess the performance of the franchise in the early months.

It should be noted that any Bank will not warrant, endorse or recommend any franchise.  The decision as to which franchise to buy is left to individuals who should undertake thorough research into the franchise.

NatWest also provides a free Guide to Franchising and there is further information available on our website www.natwest.com/franchise.  If you would like a copy of this, or our Business Planning template please contact the NatWest Franchise Section on 020 7427 8405 or email franchise.retailbanking@natwest.com.

Mark Scott

National Franchise Manager