Research the Franchise

You should investigate and assess the franchisor and the business before you pay any initial fee or sign the legal agreement.  You should ensure that you are investigating the actual company that will be your franchisor on the legal agreement. Be careful not to assess the franchisor based on any parent company or other trading company if the franchisor company is a separate company. Some investigations (as a minimum) that we recommend that you carry out include:

  • Financial - you should take financial or accountants' advice and should ask to see the franchisor's accounts, and (if possible) franchisees' accounts to check that the profit and revenue levels are as reported. You need to be satisfied that the franchisor has sufficient money and assets and is not in danger of becoming insolvent. You can obtain credit checks fairly inexpensively.

  • Franchisees - you should ask the franchisor for a full list of existing franchisees (an ethical franchisor should have nothing to hide) and should contact as many as possible. You can ask about the support and training received, how well the business is working for the franchisee, profitability, and relations with the franchisor. One important question is to ask the franchisee whether, if he or she could turn the clock back, they would buy the franchise again.

  • Companies House - you can do an inexpensive search at Companies House to check who the directors and shareholders of the franchisor are, when the company was set up, and to get a copy of the latest filed accounts for the franchisor.

  • Trade Marks - You can search the online trade marks database for free. Check that the franchisor company (the one on the franchise agreement) owns UK or European registered trade marks to protect the brand name and logo. If a related company owns the trade marks then you should ask to see the licence to your franchisor company.

  • Internet - search the internet for references to the franchisor, its owners, its directors and the business

  • Banks - you can check what the franchise departments of the main banks have as a lending stance on the franchised business. You can not rely on a willingness to lend as meaning that the franchise is working well, but if the banks are not willing to lend to franchisees of a particular franchisor, then that would be a negative signal.

  • BFA - you should ask whether the franchisor is a member of the British Franchise Association and whether it complies with its Code of Ethics, and if not, why not. Bear in mind, however, that membership of the BFA does in itself not give you any guarantees or legal assurances about the profitability or success of your franchise, so your own investigation is more important.

  • Franchisor - ask the franchisor anything you want until you are satisfied. Example questions include how many terminations there have been of franchise agreements, how many sales of existing franchisee businesses, any current or past litigation, disputes or legal claims, whether the directors or shareholders have had or currently have any previous franchise interests, what the future plans are for the business, what support and training they offer.

  • Experience - Investigate how long the business has been operating (and check accounts for as many years as possible) and how long it has been franchised. Check the history and background of the owners and managers as much as possible, including checking their experience with the core business but also in franchising. Do online searches to check for previous insolvencies, bankruptcies or failed businesses related to the owners or directors).