What is the point of the BFA (British Franchise Association)

[teecee90]

Having recently been conned out of around £10k in franchise fees and receiving no help or support from the BFA, I have to ask the question .... what is the point of the BFA?

I wont go into all the details, but the franchise I invested in had provisional BFA membership at the point I signed my letter of intent and paid the initial deposit. As a brand new franchise I was aware of the increased risks, which was partly reflected in the franchise fees and proposed early discounted management fee for early adopters. However, I took considerable comfort from the fact that the business had BFA membership.

Anyway, to cut a long storey short, the business that the franchise was based on went into administration shortly before I was due to sign my franchise agreement. In a way this was good timing as it enabled me to withdraw from the franchise before I had entered into any formal agreement. The franchise business remained operational as it was set up as a separate company and the franchisor tried to convince me that everything was still going to plan. There were three other franchises that were trading at that time (of which just one remains today).

The franchise deposit was (in theory) fully refundable, but the franchisor only refunded a few hundred pounds, claiming that he was etitled to keep the rest as 'reasonable expenses'. I challenged this and requested details of the expenses, which needless to say was not forthcoming. I have successfully taken a claim to the County Court but have been unable to recovery any of the money and it subsequently transpires that a number of other potential franchisees have lost substantial deposits and there are further CCJs agaisnt the franchise company.

Through all of this process the BFA have been no help whatsoever. It turns out that they had a number of complaints from other potential franchisees. When a franchise has BFA accreditation (albeit provisional) one would expect that there would be some degree of scrutiny of the business before they accept the membership fee. In reality, there is obviously very little scrutiny and the BFA will take no responsibility for accrediting franchises that subsequently turn out to be a complete failure, or worse.

In my view the BFA should at the very least make it abundantly clear to potential franchisees that provisional membership is virtually meaningless and offers no assurance whatsoever to potential investors about the viability or ethical standards of the franchisor.

 

[vvaannmmaann]

Sorry for your problems.
What due diligence if any did you undertake prior to getting into the franchise?

 

[teecee90]

Re due dilligence - I obtained the latest 3 years accounts of the 'pilot' company and did a detailed analysis of sales, costs, gross & net profit etc. The franchise company was new so had no accounts. I also took advice from an accountant on the BFA affiliate list. Unfortunately the financial problems started in year 4 for which official filed accounts were not yet available and management accounts did not include the franchise set-up costs (which were the major cause of the failure). I also spoke to the other franchisees. I also had the business plan checked by a specilist franchise finance consultant, which was when some of the problems started to emerge. The business plan was also scrutinsed by the franchise team at HSBC, and they actually approved all the finance. The franchise agreement was due to be scrutinised by a specialist franchise lawyer recommended by HSBC, but we didnt get that far in th end.

 

[GraemeL]

Who funds the BFA?

The NHBC scheme is funded by builders and is a toothless hamster. I guess the same might apply?

 

[garyk]

Exactly what is the point?

To me that is what is wrong with the whole franchising industry. It is *self-regulated* and when asking people to stump up large amounts of money that that is absurd.

I'm sorry to hear of our troubles but I don't think the BFA will be on your side and if the debts have been sunk into the franchisors business which is now defunct no real option of recovery either.

I've been saying for years on this very forum that franchising is a con (not much help for you I know!).

 

[Twinkle Toes]

Exactly what is the point?

To me that is what is wrong with the whole franchising industry. It is *self-regulated* and when asking people to stump up large amounts of money that that is absurd.

I'm sorry to hear of our troubles but I don't think the BFA will be on your side and if the debts have been sunk into the franchisors business which is now defunct no real option of recovery either.

I've been saying for years on this very forum that franchising is a con (not much help for you I know!).

Generally I agree, if you need the support of a franchise you probably shouldn't be going into business at all.

The only exception is, if you can afford it, is the likes of McDonalds, Costa, Specsavers, Subway etc where you are buying a well know, trusted, supported and profitable brand. Why anyone would buy into a new franchise business us beyond me.

 

[teecee90]

Obviously I can only speak for myself, but I suspect I'm not atypical. There are a number of reasons I chose franchising as a route into busienss, but the key one is probably around attitude to risk.... particularly for someone like me who has worked in the corporate world for most of my life. It is constantly drummed into you that franchising (in general) is lower risk than simply starting a business yourself. This message doesn't just come direct from the franchising industry, but also from banks and other financial institutions.... and I suspect this is probably true in the main, particuarly if you are buying into a well established and successful business model.

What I find frustrating, is that it is very hard to obtain any truely objective views and opinions on specific franchises. Speaking to existing franchisees has some benefit, but speaking to former franchisees would perhaps be more insightful but is much harder to do.

Anyway, this is drifting off-topic a bit. My main point in this thread is that the BFA offers no help to franchisees, despite what it might claim. Based on my experience it appears to be just a cosy boys club designed almost exclusively to promote (and safeguard) the interests of franchisors and as such prospective franchisees should take no comfort or assurance from the fact that a particular franchise is a BFA member.

 

[garyk]

Generally I agree, if you need the support of a franchise you probably shouldn't be going into business at all.

The only exception is, if you can afford it, is the likes of McDonalds, Costa, Specsavers, Subway etc where you are buying a well know, trusted, supported and profitable brand. Why anyone would buy into a new franchise business us beyond me.

Actually thats exactly what I say, unless its one of the above mentioned ones forget it. The only one I would add to that is snap-on tools. My brother in law has been doing it for a few years and makes a very good living from it, he works hard at it but its a good franchise.

 

[teecee90]

Found out today that the person who set up this franchise and conned me and many others out of substantial deposits has now set up a new company with the same business model but under a different name and is happily trading again. His wife was the sole director of the original business when it went into administration and has been declared bankrupt and is apparently subject to a administrators report to BIS but it seems that the person who was actually running the business gets away with impunity.

 

[Ian J]

In my view the BFA should at the very least make it abundantly clear to potential franchisees that provisional membership is virtually meaningless and offers no assurance whatsoever to potential investors about the viability or ethical standards of the franchisor.

I've just had a look at the BFA's description of provisional membership which it describes as follows:-

Provisionally Listed Companies are at the beginning of their development in franchising. There is a real business up and running where end products and services are being sold successfully to consumers. The franchise agreement is sound, and the company has committed itself to develop the business in accordance with bfa industry standards.

To me that reads "buyer beware"

 

[teecee90]

To me it reads "this is higher risk than full membership but you can still take some comfort from the BFA badge". As I said, the reality is that you can take no comfort whatsoever and this category appear to be just a vehicle for generating additional membership subscriptions from businesses that have done no more than submit a standard franchise agreement and sign an application form.