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Brody Sweeney’s Franchise Diary – Must Ask Questions for Your Future Franchisor

I’m Brody Sweeney, the founder of Camile Thai Kitchen, an award winning home delivery franchise. It’s my third and most fun franchise business, and after 40 years in the franchise industry, I guess you could say I’ve seen a lot – good and bad – about this industry. This blog is not about my business, but rather some advice for if you’re thinking about franchising, or indeed already involved in it – and want to learn more.

Questions to Ask Your Potential Franchisor

Asking the right questions is important to laying the foundation of your future franchise partnership. I’ve set out some important points that will help you form an opinion of your new franchisor before making a financial or legal commitment to them. 

As a general point, franchisors should welcome these questions, because they demonstrate you are doing your due diligence. The better quality questions being asked of me, the more excited I get about taking a franchisee on. It shows their seriousness about the venture, which bodes well for both of us. 

 

1. Can you show me the actual operating performance for a unit?

It’s an unstated principle that good Franchisors shouldn’t really make earnings claims for their business, as nobody really knows how a new business will perform in the early days. But you need to know how the financial side of the business works, and so a historic profit and loss statement, for one or more branches, will give you a good idea, how sales translate into profits. 

Your franchisor will probably give you figures for their top performing units (they are after all trying to sell you a franchise), and there’s nothing wrong with that, except to understand that these are probably not average performances. 

In any franchise system there will be poorly performing branches, that may even lose money. There are a wide variety of reasons why that may be – in my experience so much has to do with the manager or franchisees operation of the business – that do not call into question the viability of the system.

A franchisor may also have some form of  disclosure document, which outlines a lot more detail about the franchise, including who owns it, and how they make their money. You should ask for it, and expect a yes.

 

2. Can I speak to existing franchisees?

Speaking to existing franchisees is a great way of finding out about the franchise. Ideally your franchise company will give you a list of all their franchisees, and invite you to pick 2 or 3 to actually meet.

Firstly, you get to see the type of people that the franchisor has recruited. Do you identify with them?, do they seem like good business people? Can you imagine them as colleagues and peers for the next ten years?

Secondly how does the franchisee speak about their franchisor? A healthy tension in a franchise is a good thing, but that’s not the same as a franchisee bad-mouthing (maybe with some justification) the support office. You can tell a lot about the state of relations in the franchise, by talking to two or three franchisees.

And finally, you can ask them about how they’re doing financially. They don’t have to be making a fortune (their own business may have only recently opened for example), but they should feel they are on a pathway to profitability, and be able to verify for you, that their key costs are in line with what the franchisor says they are.

 

 

3. Are you members of the IFA / BFA, or your region’s franchise association?

Any franchisor worth their salt, will be a member of their local franchise trade association, and if they’re not, you should be asking why.

Franchise trade associations conduct some basic checks on your franchise before admitting them to membership, and while this is not a substitute for separate and specialist independent legal and financial advice for you, it does indicate that your franchise has at least passed some basic tests that indicate that it is a bona-fide business.

You should be conscious though that the trade associations tend to conduct tests before admitting franchise companies to membership, but almost no tests after that. So while the company may have passed a test 20 years ago, there’s no guarantee that standards are still being maintained.

 

 

4. Can you introduce me to contacts in the banks?

Most high street banks have specialist franchise teams, who act as a liaison between franchise companies, and the banks local branch management teams. Banks love lending to franchises as it’s way less risky for them to spread their risk over many franchisees (who are unlikely to go bust all at the same time) as opposed to a company owned chain, where if the company fails, all is lost.

Your franchisor should have a relationship with all the franchise managers in the high street banks, and be able to introduce you to them, before you make an application to your local branch. If they can’t do an introduction, that should be a red flag for you. Why do they not have a relationship with the banks?

 

 

5. What are you doing to future proof this business?

While none of us can forecast the future, some trends are obvious, and to the extent they might affect the performance of your chosen business, you want to think that they are on your franchisors radar, and that he or she is thinking about how to deal with them. 

For example the coronavirus crisis it seems will lead to many more people working from home than before. Peoples are still increasing their use of screens for phone, email, video calls – all of which can impact business in all sorts of ways. Can your franchisor demonstrate that they’re on it ?

 

 

6. What are the biggest challenges I will face as a franchisee?

Any franchise you get involved with will have challenges, some of which are common to nearly all business start-ups. If your franchisor cannot articulate what they are, or indeed down-play them, then they may not be being realistic with you. Some common challenges with starting a franchise or any new business might include learning to manage the business,  prioritizing, hiring, training and motivating your team – and building sales in a very competitive environment.

 

 

7. Have any of your franchisees failed?

Surprisingly maybe, you should expect your franchisor to have had some franchises that did not work out. No franchise company is perfect, and every established franchise will have some closed branches, or franchisees that did not work out, and that shouldn’t be a major concern for you. 

What is important is firstly that your franchisor acknowledges problems (it’s not realistic to expect that there would be none), and secondly to understand why some of the franchisees’ businesses failed.

So was it because a franchisee turned out to be unsuitable, or the demographics of an area changed? Or was it some other reason, that will help you avoid that situation yourself?

 

8. How will you support me pre-opening and post-opening?

One of the areas where franchise relationships can break down, is where expectations are not managed, and assumptions are made.

Before embarking on your new venture, you should be crystal clear about who does what in terms of getting the new business off the ground. In our case for both pre and post opening, we list the franchisors responsibilities and the franchisees separately. 

For example it is the franchisors duty to help with the recruitment and training of new staff, but the franchisees responsibility to actually legally hire, train and fire them as necessary.

Take the trouble before signing off with your franchisor, to remove any and all “assumptions” about who will do what, and get a name responsible for each task. 

 

 

9. How and when will I be trained?

Many recruits into a new franchise system will have no specific industry experience, as well as probably little experience of running their own business. The training of these people is therefore vitally important, if we want to reduce the risk of something going wrong. 

Most franchise companies run effectively a Start-Your-Own-Business course, focussing on their particular business.

The more thorough the training and preparation before the new business opens, the more chance that it will get established quickly and profitably.

Find out where your franchisor is on training, and how and when you will be trained.

 

 

10. Can I meet other members of your management team, and particularly those with whom I will have day to day contact?

The person in the franchisor company who sells you the franchise, is unlikely to be the person who looks after you on a day to day basis. So while you might get on like a house on fire with the franchise sales person (who by the way tends to be warm and engaging – otherwise they don’t sell franchises), the person you actually deal with from the operations team may be very different.

It pays to get to know the franchisor team before committing, to make sure the person looking after you, is someone you can relate to – as well as you judging the calibre of people running the business. If you are not impressed with the people you meet, why would you want to spend the next 10 years or so of your life with them?

 

You have an opportunity before commitments are made and money changes hands, to ask hard questions and get satisfactory answers. It has never ceased to surprise me over the years, how many franchisees become blinded by the perceived success of the franchise, and don’t ask hard questions, before parting with significant amounts of cash and a major portion of their life. Don’t be like that.

 

Brody

Learn More about Camile Franchising

Follow Camile Thai on LinkedIn

 


Brody Sweeney’s Franchise Diary – 10 things to watch out for with smaller franchises

Diary Entry #2 – 10 things to watch out for with smaller franchises

While there are lots of good reasons why you should consider getting in on the ground floor with a young franchise, there are just as many things that you should watch out for before jumping on board to a concept just because it sounds exciting.

I’m Brody Sweeney, the founder of Camile Thai Kitchen, an award winning home delivery franchise. This blog is not about my business, but rather some advice for if you’re thinking about franchising generally.

Buying into any franchises is a thrilling prospect, something that can help you fulfil your career and personal goals. But like any “marriage”, the more you find out about your new business colleagues before you make a commitment, the more likely you are to get it right the first time. I want to help you frame the right questions so you can make a good decision for you, even if that ultimately means rejecting the franchise you currently courting. These are the kinds of questions I encourage my own franchisees to ask us, and any other franchise they may be thinking of joining. Doing this due diligence has lead to greater satisfaction – and profit – for their businesses in the long run. 

Armed with the information I have set out below, you’re much more likely to improve the quality of your decision making.  

1. With a smaller franchise, your risk will be higher.

Starting any new business is risky. According to UK bank statistics, something like 4 out of 5 new business start-ups – not including franchises – don’t make it to their fifth year. In good franchises, it’s the complete opposite., and more than 90% will still be around after 5 years. One of the main reasons you invest in a franchise is investing in a proven concept. In a newer franchise, it may not yet be fully proven, and so the risk of it not working out are higher than in an established franchise. 

 

2. The franchisor may not have full worked out the business model. 

Sometimes franchisors start selling franchises before they have proven the business model. A good newer franchise will have established pilot franchises first to fully test and prove the business idea. Through operating their own pilot outlets, franchisors get to put theory into practice, and confirm their hunch that they are on the right track, and that there is demand for their product or services, that can be served profitably. This is one of the main comfort factors a prospective franchisee can get when looking at the viability of the new business. It’s perfectly in order for a prospective franchisee to ask for evidence that the franchise works, mainly by looking at a profit and loss account for an existing franchise or pilot of the business.

 

3. Brand recognition is lower.

It stands to reason that if it’s new, it won’t be well known. One of the things you pay for in an established franchise is the goodwill attached to your brand’s name and reputation. That means before you even open, there is usually latent goodwill there, which helps get your new business into profitability quicker than if the name is unknown.

But remember Subway, and McDonalds and Starbucks started with a single store, and were not known at all at that point. So while I wouldn’t worry unduly on brand recognition, if your new franchise is going into direct competition with an established player, it can be very hard to break through to establish your franchises name.

 

4. The Franchisor may not be very experienced.

This means that you may end up paying for the franchisors mistakes as they learn how to operate the business, and make all the mistakes that are a normal part of getting a new business off the ground. A bit like they say the eldest child in a family has the hardest time, because the parents learn through them. They will find out lots about how to operate a franchise, both good and bad, through their dealings with you. The bad stuff can be painful and unless you and your franchisor are on the same page, and have the type of positive relationship which allows you to weather these storms, can lead to a breakdown in the relationship. 

A good young franchisor understands this point, and will test innovation on their company owned businesses first before asking their franchisee to take the risk.

 

5. The Franchisor may not have much purchasing clout.

One very important thing in a franchise is the benefit of the franchisor’s purchasing power, as this helps you to cover at least in part some of the royalties and marketing fees you will be charged. There may be special circumstances where this is not as important. In some franchises like Domino’s, you may actually end up paying more for goods than purchasing independently, but the bottom line is so good the food and packaging costs are higher doesn’t matter. In a new franchise, your expectation of lower cost of goods should be realistic, and in keeping with the scale of the purchases the entire group is making.

 

6. It may not be as easy to get finance as an established franchise.

One of the first lessons you learn as a business person is that banks are not supposed to take risks with their depositors money. They need assurance that the money you borrow will in fact be paid back. Banks love franchising because it’s considerably less risky than backing independents, and the risk is shared across a network of individual businesses under the franchisors umbrella, rather than lending to the franchisor on their own.

Established franchises by virtue of having been around longer, and having ironed out the kinks in their system, are less risky in the eyes of banks than new ones. This may mean the bank is more risk averse in a new franchise, which may mean they load extra security (like personal guarantees), and want to loan you a lower amount than if your franchise was well established.

 

7. Training may not be developed sufficiently.

Taking you in as a raw recruit, and training you how to set up and operate the business successfully is Franchising 101 for an established franchise, and one of the most important aspects of what you are buying into, particularly in the early days. In a new franchise, they may not have recorded or worked out all their training systems in a way that is easy to replicate and pass on to you and your team.

 

8. The franchisor may not be very good at picking other franchisees, and go for quantity rather than quality.

In my view, this is one of the biggest dangers you face in a relatively new franchise. Your franchisor may be under pressure to recoup some of the heavy initial investment they have made in getting the franchise off the ground, and when a prospective franchisee shows interest in the concept – well, that can be flattering – and perhaps cloud their judgement as to whether this is a good long term fit or not.

The problem here is that the wrong initial franchisees can ruin the system before it has gotten off the ground properly. Either a poor performer (some people are brilliant rocket scientists or school teachers, but totally unsuitable for running their own business) or someone who is disruptive and thinks they know more about the business than the franchisor, and wants to let everyone know about it – can mean the franchisor gets caught up helping a weak business, or dealing with the politics that disruptive people love to wallow in.

It should be mandatory that as you look at the franchise, that you are given the opportunity to meet and spend time with some or all of the existing franchisees to make your own mind up on this. How your franchisor deals with your application, if they’re too quick to accept you, without due diligence of you personally, should also be a warning sign.

 

9. The franchisor may run out of money before the franchise is established.

Murphy’s Law applies here. Getting a new business off the ground usually takes twice as long, and costs twice as much as planned. Not every franchisor has enough capital to come through the start-up unscathed, and so may be more worried about their own survival than yours. A franchisor who is under financial pressure, may not have the wherewithal to keep going as your business becomes established, and may have to focus their time on paying their own bills, instead of helping develop your business. They may also end up making poor quality decisions, which won’t be in your interest. 

No different than your franchisor checking you out at the beginning, I like to see prospective franchisees checking us out also, by asking probing questions, and getting acceptable answers.

 

10. The franchise may be vulnerable to a better funded, larger competitor, who may try and put you out of business.

When companies like Sixt Rent a Car or McDonalds set up, they didn’t have a lot of competition. That meant they were able to become established and build a brand name without having to be in a dogfight with a competitor from the getgo. It doesn’t mean that getting involved in a new Pizza or Hamburger franchise is doomed from the start, it can just be much harder. If the established business decides to bloody your nose, your new franchise may not have the financial firepower to withstand it.

 

In Summary

I hope you found these common sense matters helpful for you in your search for the right franchise relationship. Always dig, dig, dig, and do your research before jumping on the first opportunity that promises you fortune and fame within fifteen months.

If I was leaving you with a good tip from these pointers, it would be to recognise that if you really like the new franchise, if you feel incredibly drawn to it (and you should obviously feel passionate about it), then recognise that these are emotions, and emotional only decisions about business are generally not good.

Put your unemotional business hat on, and do a proper due diligence on your franchisor, and the people behind it, while you still have the time, and definitely before you make an irrevocable commitment to the new venture. That’s what we’ve encouraged all of our franchisees to do, and it’s contributed greatly to their long term satisfaction working with Camile. 

Good luck and stay safe,

 

Brody

Learn More about Camile Franchising

Follow Camile Thai on LinkedIn


Brody Sweeney’s Franchise Diary – 10 Reasons You Should Consider A Start-Up Franchise

If you’re thinking about going into franchising, one of the first things you will think about is about whether you should join a large conglomerate like Burger King or Spar, or if would it be better to go with a new franchise business. Which would be a better fit for you?

I’m Brody Sweeney, the founder of Camile Thai Kitchen, an award winning home delivery franchise. It’s my third franchise business, so I guess you could say my grey hair has seen a lot. This blog is not about my business, but rather some advice for if you’re thinking about franchises generally.

Like most things in life, there are good and potentially bad things about getting involved with a start up franchise. What I’m going to take you through now are some of the good reasons – indeed some of the great reasons – you should consider a start up franchise, as a brilliant partner to help you achieve your own business and career goals.

1. There is more opportunity to grow.

Finding an opportunity to start with an established franchise can be tricky. For example in McDonalds, they may have an opportunity for you, but it could be hundreds of miles from where you live. If you want to buy a Domino’s Pizza franchise in the UK or Ireland, it’s virtually impossible, as existing franchisees and company owned store managers snap up all the available opportunities. In a new franchise you won’t find a Sold out sign on areas, say close to where you live, that you might like to open in. You can reserve other areas for future growth, before they’re all sold out. In a good young franchise your annual sales growth will be higher than in an established franchise, as your brand awareness grows. That means lots of opportunities to grow personally and for your business.

2. You won’t be just a number.

The managers of your franchise have a strong vested interest in your success. You see smart franchisors realise early on that the best selling proposition for their franchise – the best way of getting new franchisees into the system – is to have successful existing franchisees. The company is motivated to really take care of you, and do whatever it takes to make you successful, because when you are successful, then so are they.

3. You stand to make a bigger capital gain when you go to sell your business.

When you start your new business under the new franchisors umbrella, typically its resale value may not be as high as established franchises in the early stages. But as your new franchise grows, and new franchisees join the system, the resale value will increase as good opportunities in your franchise become rarer.

4. You’ll be part of something new and exciting.

For lots of us, being in a business that’s growing quickly can be a real buzz, as the sometimes chaotic rapid growth period is exciting and fun. Growing any business rapidly usually brings lots of growth pangs, but you can put up with that, if positive momentum is being maintained.

5. There will be lots of innovation.

Some of us thrive on novelty and variety, and in a fast growing franchise there’s usually plenty of that. In the early stages the franchisor won’t have figured all the myriad aspects of running your type of business, so a healthy level of innovation – and trial and error is a good thing. If you’re somebody who loves a predictable, low fuss life – and some people do for good reasons – you might be best not joining a fast growth early stage franchise.

6. It’s less risky than doing it on your own.

While starting with almost any young franchise is less risky than doing it on your own, it can be more risky than doing it with an established franchise. Before a good franchisor allows you to open under their brand, they should do some important checks with you to make sure you are suitable for their business. For example a good franchisor would make sure you have enough money, that you don’t borrow too much, and that you do have the ability to do so if you need to. They would also spend time with you to make sure you are temperamentally suitable for running your own business, and leading a team of people, where that is applicable. They wouldn’t let you open in a location where they thought it might not work, and they will know the prices to charge to make sure you can get to a bottom line, and how to market the business, and how to train the staff etc. etc. When you put these reasons (and these are only some of them) together, these are typically where small business owners fall down, when starting up a business.

7. You’ll be an important part of creating something great.

It’s a great feeling to be in on the ground floor of a successful new business, and to have the satisfaction of saying you were part of the founding team, that made it great. Think of how proud the early franchisees of McDonalds or The Body Shop must have felt, being recognised as pioneers in their respective industries.

8. You’ll have a much closer relationship with your franchisor in a small franchise business.

In the early days, when the franchise is small, you will have a close relationship with the founder and their start-up team. As the franchise grows, these early relationships, when you really counted towards getting the franchise off the ground, will be really important. The fact that you will always have a direct line to the founders, means that when you need to be heard, you will be.

9. You’ll have an opportunity to contribute your own ideas.

Some of the best innovation in young franchise companies comes from its franchisees. The Big Mac in McDonalds was an invention of one of its franchisees, and your great idea could become a cornerstone of your franchise’s growth.

10. You won’t be on your own.

One of the hardest things about starting a new business on your own, and one almost nobody talks about, is the loneliness. When you don’t know what to do, and believe me, in a new business, that’s a lot of the time, it can be really stressful trying to figure out what’s the right thing to do. In franchising, you work for yourself but not by yourself. There’s a proven system to operate the business, and when some new problem comes up, it’s likely some other franchisee in the system has already faced the problem, and figured out the solution, and you can benefit from their experience. A good franchisor provides lots of opportunities to communicate with your peers and the company’s management, so that you don’t feel that you’re on your own.

If I was leaving you with one tip – and if after this session, it’s not completely obvious – it’s get to know your franchisor as well as you can, before embarking on a business adventure with them. Franchising is like getting married in a business sense. If you think about that, in a conventional marriage, you meet your new partner, probably flirt with them, spend lots of time with them, and then meet their family before making a lifelong commitment. Apply this thinking to your new franchises business, and you reduce substantially the risk of making a mistake.

So those are my ten reasons why you should consider a start-up franchise. In my next post, I’m going to give you ten things to watch out for in a start-up franchise, so you have balance, as you make your mind up about what the correct call for you to make is.

Good luck and stay safe,

Brody

Learn More about Camile Franchising

Follow Camile Thai on LinkedIn