Franchising – Life after redundancy

Business opportunity after redundancy

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Job insecurity has a strangle hold on workers around the world. For many, redundancy will become a reality and will prove a very emotional and worrying time. Some people will accept it, while others might feel shock, anger, fear or even denial. But the most important thing for anyone going through a redundancy is not to rush into making decisions about the future. It’s all too easy to make hasty decisions, perhaps out of fear of unemployment or change, however redundancy can actually provide an ideal opportunity to refocus and steer your career or other aspects of your life in a different direction.

Many people who are made redundant might consider setting up their own business, and while there are many options out there, it is absolutely vital that any decision is not taken lightly. It should be understood that there are no businesses which provide substantial profits and overnight success. Running a business in the initial months can be sixteen hours day, seven days a week, meaning a substantial personal commitment and change to the existing lifestyle is likely to be required. It is vital that you have the support of family and friends from the outset. Rewards in the longer term can be significant in terms of personal satisfaction, lifestyle, independence and financial stability.

Franchising can be a great way to reduce the risks of setting up a business, because franchised businesses are already tried and tested success stories. According to the age old saying ‘A journey of a thousand miles begins with a single step’ so break down your franchise research into small steps. Develop a plan to give yourself the best chance of identifying the right franchise for you. A franchisor may have spent many years developing their business systems and will provide initial training, as well as ongoing support to the franchisee. According to sector research nine out of ten franchisees claimed that their business operate profitably. Although franchising does not by any means eliminate the risk of failure, it can be a favourable option for people wanting to start their own business.

What do you need to consider? Many franchisors will tell you that finding suitable franchisees is one of their biggest barriers to expansion. Finding people with the right skills and sufficient funds to invest in a business remain real concerns for franchisors. From the franchisor’s point of view people who have been made redundant often have a number of qualities as well as the available funds to commit to a fresh start. Good franchisors will carry out a rigorous assessment, which may include psychometric or practical testing, to ensure as far as possible that they find people who will be able to develop their business. When you’re looking for a potential franchisor, it’s important you find someone who is able to answer all your questions. If they only seem interested in taking on your investment, be prepared to walk away.

Carry out a self-assessment before you start. Do you have the attributes to be a successful franchisee? If you are somebody who has a strong entrepreneurial spirit or looks to do things your own way then franchising is unlikely to be the right choice for you. Franchising requires you to follow a system and in most cases you’ll need sales ability, excellent communication skills and be capable of delivering a first-class service.

Once you’ve decided to take the franchise route, you’ll need to think about funding the business. Banks will generally fund up to seventy per cent of the initial set up costs including working capital for a well established franchise system, although you’ll probably be asked to provide security, such as a legal charge over your home. For less established franchise opportunities your required capital stake is likely to be higher. Other sources of finance might be savings and of course any redundancy payments you’ve received from your previous employer.

Using a redundancy package or other savings to fund a franchise means that you’ll have more control over the business and that you’ll avoid interest repayments or loan charges. It can also demonstrate your commitment to and belief in your business, which can help sway lenders in the future, should you choose to borrow further down the line. However, using up these cash reserves to start up does mean you may not have anything to fall back on so it is worthwhile keeping enough money in reserve as a contingency, to cover twelve months personal expenditure, in case the business takes longer to get off the ground that you first envisaged.

For those facing redundancy, it can be hard to see it in a positive light, especially if it has come out of the blue. Nevertheless, there are many options open to people in this situation and for those interested in starting up a business, franchising can be a real opportunity and a path well worth considering. The British Franchise Association runs exhibitions and seminars that provide an invaluable insight into franchise investment.

Lloyds Bank has produced a helpful guide to support your research as to whether franchising is the right option for you and a free copy can be downloaded at website. Our team of Franchise Managers are available to discuss all aspects of planning your business and any financing requirements you may have.

Richard Holden
Head of Franchising
Lloyds Banking Group
Tel: 07802 324018

Richard heads up the Lloyds Bank franchise team and is a regular contributor to trade publications and national press. He regularly speaks at franchise seminars and exhibitions.