Franchising in Ireland in 2012

As we move into 2012, we have been hearing a lot about economic challenges facing many countries, including Ireland.

Not all business sectors have been performing the same – to paraphrase Charles Dickens, Ireland in 2011 saw the best of times and the worst of times… Exports performed strongly while businesses servicing the domestic market operated in a challenging environment.

While Business Information Provider Vision-net reported 160 business failures per month in the first 11 months of 2011, it also reported high levels of entrepreneurship in the first 11 months of 2011 – 14,439 new firms were incorporated in Ireland (up five per cent on 2010) and 26,154 business names were registered (65 per cent by individuals).

The number of people who have lost their jobs undoubtedly influences the high rate of entrepreneurship in Ireland. When redundancy looms, people tend to re-evaluate options for earning a living. Many people are not naturally entrepreneurs, and find the idea of starting a business alone very daunting. Franchising can offer a logical route to business ownership.

Robust

At this time, a wide variety of people are considering setting-up franchise businesses – they come from all sectors of the business community and have a diverse range of business skills. A robust well-run franchise model, which brings with it a range of managerial supports, can be a real benefit to a would-be entrepreneur.


The sectors people are interested in are diverse, but very much influenced by the world we live in. With less discretionary income around, consumer focus is very much on getting value for money, extending the life of things already owned, and paying for must-haves rather than nice-to-haves. As a result, franchises such as car repairs, carpet or upholstery cleaning and clothing alterations are proving popular with consumers.


When people are eating out they are looking for value-for-money and are quite ‘deal conscious’, this offers good opportunities to well run casual dining franchises, where effective central or bulk buying can combine with quality and service delivery.

Now, more than ever, businesses are looking for cost-effective ways to outsource services – so franchises that provide virtual office services, outsourced printing or outsourced delivery services are also in demand.

As consumers shift towards doing business on the internet, opportunities arise for businesses with effective online platforms. Franchise brands that service online companies, for instance, by providing local delivery services, also benefit from this trend.

Whichever sector you choose, the calibre of the franchisor is very important.

Advice

If you are considering buying into a franchise brand, you need to take independent legal and financial advice, before committing yourself to your investment.


When choosing a franchise ensure it:

  • Is a well-established business with a history of making profits – existing franchise owners should be generating cashflow and profits
  • Has an experienced management team, who provide skills, mentoring and support to help the franchise owner start the new business
  • Offers effective training and support for franchise owners
  • Demonstrates the business can be copied successfully and has a successful pilot and satisfied franchise owners
  • Is governed by a legal Franchise Agreement, developed by a reputable franchise lawyer
  • Offers a wide enough profit margin to allow both franchisor and franchise owner to share in the success of the business
  • In franchising, as with any other start-up, would-be business owners should expect to commit their own cash and assets to support their new business, as well as borrowing from a bank.

Funds The amount you can borrow will essentially come down to two basic issues. Firstly, what percentage of set-up costs you can personally fund. As a general rule of thumb, a franchise owner would expect to invest cash to cover one third of the costs of set-up and any expected losses, before the business starts to make profit.


The second consideration is how much cash the business needs to generate to make repayments on borrowings. If the business is not projected to make enough cash to pay interest and capital repayments, then the business cannot afford the debt.

As an example, if you personally have €10,000 to invest in a business, you might realistically borrow up to €20,000, if the plan for the business you are investing in shows you will generate enough cash flow to repay that level of debt with interest within an agreed timeframe – usually no longer than the term of the

Franchise Agreement

Your business plan will be key to your successful application for bank debt. It should include a cashflow projection, which will outline how much cash the business is expected to generate. Your cashflow projections should be ‘sensitised’ to show what could happen if the business is slower to get off the ground than you anticipate, or if costs are higher than you expect.

Before you invest your time and expense in drawing up a business plan, it’s a good idea to first arrange an informal chat with your bank.

Banks

At Ulster Bank we welcome the chance to have an initial chat before you develop a business plan. We are committed to Relationship Banking and wish to understand your business, and its day-to-day requirements, so we can provide what you need.


As plans for your business firm up, it seems fair that your conversations with your Relationship Manager are supported by a clear business plan – developed by you – with the assistance of your professional advisors and the franchise in which you wish to invest. At Ulster Bank, when we receive your business plan and are considering your request for finance – we typically focus on five fundamentals – ‘the 5 Cs’ which help to make a lending decision – these 5 Cs’ are:

Character – The borrower’s personal qualities
Capital – The spilt between equity (the money put in) and the debt (money borrowed)
Collateral – The security given to the bank for protection of the loan
Conditions – The assessment of the current economic market
Capacity – The ability to repay the credit facility

The involvement of a well-established, reputable franchise opportunity, which has a proven track record in opening and operating successful, profitable franchise owner outlets, can offer comfort about capacity of the new franchise owner making enough money to repay the credit facility. The prospective franchise owner will still have to develop a financial and business plan, but the assumptions in the business plan can be supported by the performance history of other franchise owner outlets in the brand or franchise network.

Ulster Bank offers a very competitive package for franchise and start-up customers. Ulster Bank’s Start-up Business Loan rate of currently 4.1 per cent* variable is available for Start-up Loans up to €70,000, while loans of up to €30,000 can to provided for new business development purposes without need for personal guarantees to be backed by assets.**

*Rates quoted effective as of 05/01/2012 and subject to change. Rate available to new business customers only.
**Lending terms and conditions apply. Details available at your Ulster Bank branch. Borrowers must be over 18.

Written by Orna Stokes, of Ulster Bank (pictured)