What does the word ‘franchising’ mean to you? You may not have heard the names but the white collar, business, and financial-based franchises are growing and there are plenty of opportunities to advise companies, particularly on cost reduction or assist small businesses with their tax and accounts needs.
Advice on cost reduction exists in the form of Auditel (UK) Ltd and Expense Reduction Analysts (ERA). These are separate though sister companies that offer consultancy services identifying ways to cuts costs in businesses.
In the UK, Auditel is the older of the two and specializes in working with energy, telecommunications, and facilities services. ERA deals with everything else – from advertising and computers to office supplies and vehicles.
Other financial franchises exist to assist small businesses with taxes and accounts. TaxAssist Direct Ltd was formed on the back of the introduction of self-assessment tax in 1995. This franchisor is a network of individuals who work with small businesses on a one-to-one level.
What is it?
For both these franchises familiarity with and preferably contacts in the business-to-business world would be a good place to start. Not being afraid to leave the house and meet people could also be an asset. But as to how they work, this is better dealt with separately.
Cost reduction franchises
Cost reduction franchises Auditel and ERA are all about establishing a relationship with your clients. The process generally starts with networking – or you call them. It is most unlikely a company will ring you up asking for your services. Companies still see cost management as slightly unsophisticated cost cutting.
Cost management is basically where discounts are negotiated from existing and new suppliers on the basis that they will be guaranteed more orders – something of a bulk buying exercise.
ERA’s franchise recruitment manager Robert Allison: “With an international network and £400 million spending potential, we can negotiate with any supplier to provide lower prices.”
The franchisor sets up these deals and the franchisee goes into a company to try and use them to reduce costs. But you can also source your own suppliers if you want to.
Once you’ve made contact, there will be an initial meeting to establish where the company is spending money – and how much. You will then tender price savings to the client and wait for their decision.
This process takes around six to 10 weeks, over which time you would perhaps meet up with the client three or four times. Assuming they adopt your cost-saving suggestions, you will only receive a fee when the saving is made.
For example, if it is on an electricity bill and the bill comes quarterly, you will take 50 percent of that saving on a quarterly basis. This will continue for 36 months after the first bill.
Remember the client is not obliged to follow your savings and could pull out at any time throughout the negotiation period.
There’s always the possibility of more work if the client continues to make savings. A happy client is likely to look favorably on any further ideas you present. Kirsten Vigar, general manager at Auditel, explains:
“Franchisees don’t just do the initial audit, they keep monitoring and making recommendations – it is a good ongoing stream of income. For example, a client might sign you up to look at telecommunication then later ask you to look at their electricity.”
Working with other franchisees either jointly on projects or just seeking advice is possible through the Auditel/ERA network – including across franchise collaboration. For your fee, you get access to the company intranet and bulletin board.
Also check: How to start a Property Lettings Franchise
One Auditel franchisee said, “I posted up a question on the intranet bulletin board and within days people had replied seven-fold.” Being a network of people from varying industries means there is generally someone who can help where your knowledge is lacking. You are not alone.
“TaxAssist Direct franchisees will not find themselves alone either. Each franchisee can expect regular regional meetings and visits from technical personnel. There are also teams of Accountants, Tax, IT, software, Marketing, and Sales experts on hand to offer support.
Barry McGougan from Kilmarnock states “To get to where I am now could not have been done without the support and help of TaxAssist Norwich. They have indeed “walked the talk”.
“The training I have received has been excellent. However, the most important and comforting factor has been the day-to-day support given through the helpline – knowing that with a telephone call or E-mail your questions can be discussed and solutions achieved. ”
TaxAssist Direct franchisees are required to work initially from an office and within four years progress to a ‘shop front’ style office. Tom Smith from Ringwood moved into his high street shop front office in February 2004 and experienced immediate benefits.
“The shopfront has given my business a whole new dimension,” he says. “After six months of being here, we have had £10,000 worth of business directly attributable to walk-in traffic.”
Who is suited to it?
Financial service franchises attract people from a specific backgrounds. It is a ‘professional’ franchise therefore existing contacts in a white-collar industry can be beneficial. Kirsten Vigar at Auditel says they have professionals from across the board: engineers, teachers, as well as accountants.
But you must possess a certain something in your character, not just succeed but also be accepted in the first place. Vigar explains:
“Temperament is important. Franchisees need to have good analytical skills and be comfortable with figures as well as with people face to face. To sum up, we look for tenacious people, who really want to run their own business.”
This isn’t a business for people who want to sit and add up figures. In both types of franchises, a large part of the work will take you out and about. Initially, you should be trying to make contacts. But later you will find much of your time taken up looking after your clients and networking with new ones.
Thanks to the specific nature of the business, all franchisors vet potential franchisees carefully before taking them on. Both Auditel and ERA do psychometric testing to determine the suitability of candidates.
In most cases, financial experience is not a prerequisite. You must be able to handle money issues but relevant contacts and management level experience are more important.
The overheads are low because you start from home and it could be as part or full-time as you want. ERA currently has people ranging in age from 26 to 63.
At TaxAssist Direct, it is not a pre-requisite to be a qualified accountant as full bespoke training is given, but it is essential to have some previous experience in business, finance or banking and management experience would be an advantage. TaxAssist Direct is looking for business builders.
People who wish to become the Principal of their own accountancy practice where will ultimately be operating from ‘shop front’ style premises and could be servicing 500-600 clients and employing six-10 staff.
For ERA and Auditel, overheads are low thanks to working at home and working alone. At least for the first year. After this, you may find you require the services of a bookkeeper. Many people bring their spouse or partner into the business, which tends to cost less.
ERA and Auditel have a franchise fee of £29,900 and ongoing fees of up to 12.5% per year. For this, you get regional and national meetings, support, and training. This is nothing unusual. In fact, it is all necessary.
What they do have is plenty of strong aggregate buying power and this is what you will benefit from with these two franchisors. If ERA goes to a stationery company and says there will be a chance of an order from all ERA franchisees, it is likely to be given a good price.
The franchisee takes that to the customer who is more likely to make a saving and he or she is then more likely to get a fee. This is the extra support you would be paying for.
TaxAssist operates in a different way. It is designed to be a more personal service between the franchisee and the small business owner. Therefore while a network exists for support from other franchisees, it isn’t quite the same thing.
Also check: How to start a Car Repair Franchise
The ongoing fees are slightly lower but you will be required to move into office premises from the outset, and a ‘shop front’ style office within four years. Auditel and ERA don’t have such a clause – but they have different requirements. Franchisees only really go into partnership with other franchisees who have their own setup. As such, there is no need for bigger premises, even for the most ambitious.
But initially, setting up the office should cost you roughly the same as any home-based franchise. A PC, printer, desk, phone lines, and so forth. Then, as Robert Allison of ERA observes, “Costs are not that high. In a home office, the overheads might be as little as £10-£15,000 a year.”
After that, you will be relying on your powers of building a client base. The longer you take to do this, the longer you will have to bankroll yourself. Expect to support yourself for anything up to the first year.
Just because the overheads are low, it doesn’t mean you will have to bankroll yourself. Alick Jones, franchise manager at Lloyds TSB, says that the bank is very much involved with franchisors like this.
“As with all well-established franchises, we will support the franchisee for two-thirds of what they require. They would need to provide the rest themselves. We can then support them in other ways such as doing a reality check on their business plan, making sure it is exactly right for them.”
How much can I earn?
This really does depend on what you want to get out of the business. Though unless you have extensive personal reserves, the first few months are likely to be quite lean.
It is no secret that you will need to bankroll yourself for the first six to 12 months. But you must also know exactly how much your lifestyle will need to support it without income. This will vary enormously according to your individual outgoings.
It is unheard of that you will break even in the first year so this shouldn’t be reflected in your plan. Once you have a client and have identified where cost reductions can be made, you will then take 50% of that saving every time a bill or invoice comes in.
For example, you might take £5,000 from savings of £10,000 each year for the agreed 36 months – providing the amount remains at £10,000. Gas, for example, could go up or down. This sounds like a lot, but don’t forget, the franchisor will take its cut of up to 12.5%.
You will generally break even at around 18 months. If you do a very big project, the amount is still the same at 50% for you, and 50% for the company. But a cap may be agreed on it as part of the negotiation, for example, £10,000.
Collaborating on contracts with other franchisees could make you more money. Not all franchisees like doing this but it can be lucrative.
“Sometimes franchisees pick up clients who want pan European support. They can then work with 700 consultants across Europe to make shared profits on successful deals,” says ERA’s Robert Allison.
It is likely that one franchisee might take the lead in a shared project – and so a greater share of the work. As such, the fee would perhaps be split 65% to 35% – of the 50% share with the company – to reflect this.
An average earning for year three might amount to £70,000. After that, the sky is the limit. On your own, you could be earning up to £200,000 in subsequent years – but then again, you might not. As ever, there are no guarantees.
Earnings are really up to you as a TaxAssist Direct Franchisee, but by year five, if you follow the business model, you should be looking at a turnover of around £250,000-£300,000. Tom Smith who joined TaxAssist Direct in July 2002 hopes to achieve this before then. He says that his shop front office has “taken us up a notch in professionalism, and my plan now is to aggressively use the new capacity to build the business up from its current expected year-end turnover of £130,000 to around a quarter of a million.”
Having said this, most of the ERA and Auditel franchisees didn’t put expansion on the agenda. One franchisee said, “I earn enough to sustain myself with around a dozen clients – to work smarter rather than harder.” For many, this is the point of setting up this kind of franchise.
As an Auditel franchisee commented, “This is not a get-rich quick business, more be comfortably off slowly.”
Tips for Success
With cost reduction, be aware of the risk involved in not getting paid until you make savings. As Mel Williams of ERA, Birmingham explains, “You spend time looking into a project. But if you don’t make savings – no fee. If the company doesn’t take up your recommendations – no fee.”
Think about the direct competitors – local as well as national firms – in your area before setting up. David Harrison is the head of tax at accountants HLB Kidson’s questions whether there is enough business to sustain the growing number of these franchises. “Of the 10 million people who make self-assessment tax returns, less than 50% have sought professional help. It would need a very dramatic increase in self-employment to do so,” he says.
Make sure you talk to lots of franchisees before you hand over your money. This is particularly important with these franchise types because everyone will have had different experiences.
With expense reduction, once you are up and running, it’s important to get people on your side – but we’re not talking bribery here. As mentioned before, it is no good to make cost-saving suggestions if clients don’t adopt them. Treading on the toes of the purchasing manager can scupper your fees if they take your presence as criticism.
From the first, make sure you have a strong working relationship not only with the directors but also with the tier below. The latter are the ones who will really be implementing your savings. If you make them feel they are steering the project and gaining the kudos, it is likely to work in your favor in terms of your fee.
Be very clear that it will be your responsibility to find clients. The franchisor will tell you how but won’t get them for you. If you have to start very small in terms of clients, then do so. It is better to have a couple of smaller firms under your belt early than none at all. You won’t earn much money but it will give you confidence and make you feel the business is moving along.
Once the business is starting to come in, never get so busy that you neglect to go out and build the client base. Not more than you can handle, but people to come in if and when existing clients no longer require you. If you are too busy, it’s time to get some help. This could be your cue to expand.