Franchising, redundancy money and elephant traps

The offerings

Elephant avoiding the trap. Photo by Jon Stow

If we have endured the shock of redundancy there is often a feeling that we must move on as soon as we can. Many older people in that position, by which I mean thirty-five upwards, may well have a decent pay-off of cash. I am not talking hundreds of thousands, but maybe £30 or 40K. That is often the amount of money asked to buy into a franchise.

There are some great franchises about, whether we are talking about fast food or unblocking drains. There are established brands and there are tried and tested formulae. If a model works well in one area, it may well work well in another similar location. If we buy in, we know exactly what we are getting.

The top view

I have advised clients on setting up franchises. Especially in the good times they are a great way of expanding a business without a great deal of capital outlay. You allow people to borrow your great business model and branding and you take a commission as a percentage of sales after the franchisee has bought into the idea and paid a capital sum for the privilege. Everybody can win.

Testing the strength

Not all franchises are great investments in the bad times, though. I have looked at them from both ends. Firstly if you buy in you must be absolutely sure that the business model is robust and sells a product or service for which there will continue to be a demand. That may mean that a “luxury” franchise such as jewellery or children’s dance classes may suffer when people do not have the money to spend in more difficult times.

Moving the goal posts

Some existing franchisees in the recession are coming under pressure from the franchisors too who are wanting to vary their terms; move the goal posts. The franchisors’ sales commissions may well have dropped in the poorer trading conditions. They will be looking to cut their costs by providing less support to their franchisees and maybe looking for a bigger share of a smaller pot from those who are selling their brand.

Detective work

If you are looking to start a business and are considering a franchise, ask to talk to existing franchisees and not just those nominated by the main business owner. Do your own independent research and ask around. Think about whether there is enough profit for you after paying the percentage turnover due under the franchise agreement.

Some franchise models are absolutely terrific. However, if you have cash to invest in a business whether from redundancy or otherwise, do your research thoroughly. Be a detective and find out everything you can, and enlist someone like me to help if you wish. Don’t just rely on the sales literature. Think whether you have the right skills to run your chosen franchise.

Be part of a team

Start-ups are exciting. Franchises can be great if you want to be part of a successful team. Just avoid the elephant-traps which might relieve you of your hard-earned cash and you can find true business happiness.

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