Franchise agony uncle: How do you know if a franchise is good or bad?

Nigel Toplis is managing director of The Bardon Group which has four major franchise companies, past Chairman of the British Franchising Association, and has 18 years of experience. Here he answers your franchise questions.

Q: How do you know if a franchise is good or bad? 

A: Very good question and whilst you can never be 100% sure of someone until you get to know them there are things you can do to reduce the element of risk.

Very good question and whilst you can never be 100% sure of someone until you get to know them there are things you can do to reduce the element of risk.

Essentially you need to do research – you need to investigate. Talk to the right people, read up on the company – challenge and question.

Below is a checklist of things you might want to do before you part with your money:

1. Go onto the British Franchise Association website (thebfa.org) – are they a member? – if not why not – give the bfa a call and ask them.
2. Check with the specialist franchise departments of the main high street banks – ask them what they know about the franchise you’re interested in.
3. Get the information pack from the franchisor – read and digest.
4. Go online and read more about the company – get the background – how long have they been in business? How long have the directors been involved in franchising?
5. Determine what support is offered to franchisees – both at start-up and on-going
   1. Real people or telephone support only?
   2. Does the franchise run regional meetings or conferences to get franchisees together?
   3. Is there regular communication to franchisees?
6. Find out if the business dependent on a single product/service or do they have multiple income streams? I am a great believer in multiple income streams – several eggs in several baskets
7. Clarify how does the franchisor make a living? % fee based on turnover of the franchisor? Fixed fee? Income from supplying product? Ideally, you want the franchisor to be as dependent on the success of the franchisee as the franchisee themselves.
8. Be wary if the franchisor is charging a substantial licence fee but a very low on-going royalty – ask are they really committed to your business growth?
9. Try to find out if the franchisor have a reputation for being innovative – do they introduce new products/services? are they active in developing new marketing tools? have they identified new income streams?
10. Speak to franchisees and ask them about level of support – success of their business – new business opportunities – their opinion of the franchisor, etc.