Buying a franchise guide

If you are considering franchising and want to know more about the process then the below information will give you a step-by-step guide to buying a franchise business in Ireland. 

The diagram will outline the steps with each step being described in more detail below.  This information should be used alongside the other information and advice we have on our website which will go into the process in more detail, giving you a more comprehensive overview of franchising. 

Am I suited to going into business for myself?

Before researching franchising further, ask yourself the following questions:

  • Can I commit to working hard and taking all the responsibilities involved in running a franchise business? When starting a franchise business you have to commit yourself to working long hours and doing any jobs that are required, not matter how minor or tedious.  
  • Am I healthy and able to work hard and long hours?  As described above, franchising requires a lot of commitment initially and so you need to be in good health.
  • Can I address all the negative thoughts and worries that accompany being in business for yourself:
    • Do I want to take a chance and invest my hard earned cash or capital into a business?
    • Will I have the support of my family - will they put up with the level of commitment required to make my business a success? It may mean no holiday for a while!

Check the finance you have available to invest in a franchise business

Setting up a business is a risk and although going down the franchise route should minimise it - if you are buying into an ethical and reputable franchise opportunity - you should still be aware that things can go wrong. Therefore, whatever you invest  in the business could be at risk and if you borrow money you may well be left with debts to repay.

You therefore need to be very comfortable with how much you invest of your own money and how much you borrow.

  • Do I have any savings that I want to invest?
  • Any capital invested in a property or elsewhere.
  • Am I able to borrow?

Research franchising as an option to business start-up

Although buying a franchise is not an easy way to owning your own business, in some cases it is a lot easier than starting from scratch. For a start you can see your potential business in operation before you invest a penny.

You will be starting your business using someone else’s know-how and expertise gained over the years of running a mirror image business and so you don’t need to have to worry about developing the system.

  • Search franchising on the web – There are many websites, such as whichfranchise Ireland, that specialise in franchising. Take advantage of all the free information and services available to you through this medium.   
  • Understand how franchising works – look at specialist franchise magazines and literature. It’s a great start to familiarising yourself with the Irish franchise industry.
  • Attend franchise seminars - these usually take place over one day giving you the chance to hear franchisors and franchisees speak about their franchise business and their experiences in franchising. You also get the chance to hear the legal and financial aspects of franchising.
  • Attend franchise exhibitions – an annual Irish franchise exhibition is held where you can meet and talk to franchisors promoting their franchise opportunities.

Assess personal suitability and preferences for franchise type

It's a question of matching the skills and type of experience required to run a franchise with what you like doing, as well as what you are good at.

In many cases it's worth remembering that franchising can allow you to work in an industry where you've had no previous experience as most franchisors will provide thorough training that allows you to understand and be able to work in all aspects of the business. They will also provide ongoing training and support.

It is therefore more important that it is the type of work that suits you that you need to identify. Once you have found the type of work you want to do, you can then select the franchise type.

Consider:

  • What type of experience do you have? - Identify the skills you have developed over the years in order to ensure the franchise opportunity you choose fits your skills and experiences.
  • Have you managed staff? - Many franchisees are geared to a franchise employing many staff with managed skills.
  • Have you been involved in administration? - Many franchise systems involve extensive administration work therefore it would be beneficial to have some experience in this area.

What would you like to do and what are your strengths?

  • Do you want to work in a shop?
  • Do you want to work in an office?
  • Do you want to work on your own?

What do you enjoy the most?

  • Talking on the phone
  • Motivating people
  • Working with your hands
  • Driving

Identify suitable franchises within the right type and finance

Once you've decided on a particular franchise type, you can now narrow down the list of opportunities within that type by finance. The resultant list will show all opportunities within the categories you've selected. There will be several franchise opportunities in different industries for you to consider. You then can select the industry you prefer to work in.

This process will enable you to arrive at a shortlist of franchise opportunities that you can start applying for.

Assess the franchise/s

If you are buying a franchise opportunity, you are going to be working, selling and promoting the product or service for a long period of time. You can’t change or develop the product or service, so make sure that the franchise has long term appeal and its market is not threatened in any way.

It is important that the franchisor can demonstrate a clear understanding of the future market for the product or service and that you both clearly understand the following:

  • Is the market for this product / service expanding rapidly, growing slowly, static or declining?
  • Does the product / service have special features which help it to sell? Does it warrant a premium price?
  • Who would your competitors be and how competitive would your product or service be in relation to them?
  • You have looked at the general Irish market for your product, what do you know of the local market in which you will be operating?

Check out the franchisors you’ve selected

  • Is the franchisor financially sound?
  • What is the director's background?
  • What did they do previously and why did they go into franchising?
  • Does a comprehensive operations manual support the training?
  • Has the franchisor run outlets in similar areas to yours?
  • How successful is the franchisor and existing franchisees in Ireland?
  • How thorough is the training at the start-up stage and thereafter?
  • How many franchises have they opened in the last 12 months in Ireland?
  • How many applicants do they reject?

Confirm and arrange franchise funding

It is a big step from deciding to start a franchise to actually opening your doors for business. For many, one of the biggest hurdles is approaching the bank for finance.

Banks have learnt that it can be safer to lend to franchisees of well-structured ethical franchise systems. The track record of the franchisor is most important.

For an established franchise, most of the major banks will lend up to 70% of the start up costs, for new franchises the figure will probably around 50%. Banks will normally expect the franchisee to contribute at least 30% of the highlighted ingoing cost of the franchise. This contribution should be unborrowed. With this in mind:

  • How much will you be able to borrow? Prepare a full list of your personal expenditure mortgage, hire purchase, household bills, and so on. This will show how much money you will need to take out of the business in order to live.
  • What security can you give to back up your loan? You might have a life policy with some value, or have equity in your home.
  • Start preparing your business plan - this is a vital document to obtain finance from the bank. Your chosen franchisor will often help you with this.

As part of your franchise business plan, you will need to prepare cash flow forecasts for the first couple of years of the business. Your franchisor will help, but you need to be sure that you understand the figures, what are they based on, how much do you need to turnover in order to break even?

Your franchisor will normally help with setting out details of start up funds required and help with the preparation of cash flow forecasts.

Check the legal agreements

In order to become a franchisee you will have to enter into a legal agreement with the franchisor, known as the franchise agreement.

The franchise agreement should achieve three fundamental objectives:

FIRST - given the absence of specific franchise legislation, it should contractually bind the franchisor and the franchisee and accurately reflect the terms agreed upon.

SECOND - It should seek to protect for the benefit both of the franchisor and the franchisee and the franchisors intellectual property.

THIRD - It should clearly set out the rules to be observed by the parties.

As there is no specific legislation or regulation for franchising, the franchise agreement becomes all-important in determining the rights and obligations of the franchisor and the franchisee and the relationship between them. In this respect the franchise agreement can be said to form the 'engine room' of the whole transaction. If difficulties should arise between the franchisor and the franchisee they will need to turn to the contract to see what, if any, rights and obligations have been provided in the franchise agreement.

Visit franchisees to confirm your choice

You should visit existing franchisees in Ireland to learn from their experiences and to find out their opinions on the services provided by the franchisor. Good franchisors will always allow you free access to any franchisees in their network and, in most cases, existing franchisees will be happy to talk things over with you.

Some of the questions you should ask are:

  • Is your franchise profitable now?
  • Is the franchisor aware of changes in the Irish marketplace and quick to adapt?
  • If there is illness, does the franchisor offer to help?
  • What kind of on-going support do you get?
  • Did you get good training, systems and manuals?
  • Is the franchisor keeping their end of the bargain?
  • How long did it take to recoup your investment?
  • Does the franchisor welcome suggestions from franchisees?

Finalise the legal agreement

The franchise transaction is complex and the franchise agreement must respect that complexity. To the franchisee, the franchise contract represents an investment. Your business depends upon it to the extent that the business may disappear should it terminate.

Once you and your franchise solicitor are comfortable with the terms in the franchise agreement you will arrange to sign the franchise agreement and make payment as required in the agreement.

It is important that you seek legal advice from a franchise lawyer as they specialise in franchising and know what to look out for. There is no point asking the lawyer you used to buy your house to look at!

Final meeting with franchisor/sign agreement

  • Both parties will sign franchise agreement and will be bound by it.
  • Obtain training schedule as relevant.
  • Introduction to the key people involved within the franchisors organisation.
  • Arrange date for launch of your franchise