Tips on franchising
In Business 'For yourself not by yourself'
A strong economy, high employment and rising confidence levels are breeding a generation of Irish entrepreneurs. Orna Stokes, Head of Franchising at Ulster Bank Business Banking, gives her tips on franchising
It seems to me that lots of people are looking to start a business. And it is not just because, as Head of Franchising at Ulster Bank my ears are tuned to the words 'I would like to run my own business'. The fact is that more and more people have a genuine interest in the life-style change involved in leaving employment and becoming the owner of a business.
This is borne out by the recently published 2005 GEM (Global Entrepreneurship Monitor) Report finding that c10 per cent of Irish adults (c250,000 people) have recently established or are actively planning to set up new businesses.
The truth is that we Irish are natural entrepreneurs. Our strong economy and full employment have boosted our confidence levels. That said, many people would like to be their own boss but may not have the idea or the appetite to take the leap into setting up a business on their own. This is where franchising comes in - being in business 'for yourself but not by yourself'.
Franchising has traditionally provided a safer option for people starting or expanding a business than other start-up models. As a franchisee you can reduce some of the risks involved in running a business. It is estimated that more than 90 per cent of franchise start-ups are still in business after five years compared to about 50 per cent for self starts.
The rewards and challenges of being your own boss are enhanced by the comfort of knowing that your business is developing using a tried and tested model that is supported by an established successful business (the franchisor). However this is still a major challenge.
Choosing a Franchise
With over 700 franchise brands in operation in Ireland and the UK, there is a bewildering array of franchises to choose from. To choose the right one for you, keep to a few key criteria:
- Make sure the franchise suits your interests and personality.
- Have you checked out the franchise itself? Is it tried and tested, with a successful track record and a good reputation?
- Is there a market for the franchise's services in your locality? Have you researched the competition?
- Is it right for your pocket, and does it give the kind of financial return that meets your expectations?
Financing your franchise
An entry level license will cost from €20,000 but on top of that you need to add other costs such as working capital, stock etc. So the entry cost of franchising varies between €50,000 for some franchises to €500,000 or more.
The franchisor (and the Bank) will usually expect you to be able to fund at least 30 per cent of this from your own cash resources. In this respect a maturing SSIA, for example, could go a long way to getting you on the franchising path.
With more than 25 years of experience of Franchise Finance, Ulster Bank has a depth of knowledge and a wide range of relationships with key franchises in Ireland and the UK. For a franchisee investing in a well proven franchise, we can lend up to 75 per cent* of the set-up costs of your new franchise, through a mix of Equity Release, Term Debt, Asset Finance.
Our package of funding is tailored to suit the financial profile of the individual borrower and the business. In addition, we can offer you a tailored package of discounted banking products to meet all your day-to-day banking requirements.
We will also provide a Dedicated Relationship Manager to work with you to help you identify, prioritise and meet all your business' financial needs. Whether you bank with Ulster Bank or not, we can offer you a free Business Review with a Relationship Manager experienced in a wide range of business sectors. The process is a simple one and can help you manage your business finances more effectively.
When you meet your Relationship Manager to discuss financing your franchise, your Business Plan will form the basis for detailed discussions. It should include:
- Information about you and your business background.
- Information about the franchise.
- Information about the market and your competition.
- Details of start-up costs and your cash equity contribution.
- Profit projections and cashflow forecasts for your new business -they should show how the business can meet its financial commitments, including repayment of the borrowings.
- Details of your personal finances - what you own and what you owe.
- The Bank may require security for your debt, this may include a requirement to provide personal guarantees and security over other assets you own.
Interest Rates vary depending on the amount borrowed, the amount of equity invested, and security available.
Do your homework
The franchise route has proven to be one of the safest ways to start up in business, but that does not mean franchising is risk free. It is essential to do your homework.
Take legal and financial guidance from appropriate professionals. Talk to other franchisors and franchisees, and undertake your research. Ulster Bank's Franchise Guides can help with your homework.