How to Buy a Franchise the Smart Way
After spending hours researching on the best business to start, you’ve decided that franchising is the way you want to go. But the big question is: how do you pick the best one? Many franchise businesses have failed because franchisees didn’t do their due diligence when studying the intricacies of running a franchise before signing on the dotted line.
There are four things you should consider before deciding to go the franchise way:
1) Consider your lifestyle – It’s important to ask yourself what kind of lifestyle you are looking to lead. If you’re someone who has a family and wants to stay home at night it’s best to avoid a franchise that is busy after hours. If you’re someone who enjoys travelling, make sure you don’t pick a franchise that requires you to be physically there all the time.
2) Passion or profit – Are you looking to run a business that you’re passionate about and look forward to doing everyday or is it all about the money?
3) The bigger picture – Research the industry you’re thinking of franchising into. Study your competitors and how they do business.
4) The piece of the puzzle – Once you pick an industry, music for example, research the top record stores and see whether they have expanded in the last 5 years. What’s their staff turnover like? What do customers say about their service and pricing?
Next, pick up franchise circular offerings from at least two competitors. Do comparison studies, like annual turnovers, location analysis and the average rate of franchise growth. Also do price comparisons with regards to their initial set up fee and their royalty structure. Most franchisors provide marketing and advertising costs as part of the deal, but some require these to be shared with the franchiser. How much will it cost you if it’s the latter? Study the numbers when it comes to start-up inventories and location construction costs. All these things have to be considered before deciding if a particular franchise is worth your hard earned savings.
After that, study the number of franchises that have grown out of the business. Have there been only five in the last two years? Or have there been 20 in the last three years? Examine the area of the set-up. Are there competitors who will compromise your bottom line?
Last but not least, study the history and background of the company and the people behind it. Read through financial papers and check out their legal system in place for dispute resolution when it comes to franchise agreements.
Once you have a short -list, visit some of the existing franchisee. Observe the customers. Talk to others who have entered into a franchise agreement with the franchisor you are considering. Get their feedback on running the franchise, the hours, the advantages and disadvantages. It’s always good to talk to those who are already where you are heading.
Last but not least, before entering into any business agreement, consult an accountant or lawyer to advise you on what you need to know. It’s always good to be thorough when entering into a franchise agreement.
About Author:
I have been an entrepreneur all my life with success in all types of businesses. For the last 15 years I have mostly been a real estate entrepreneur, developing and investing in land development projects. When the real estate market slowed down in 2006, I decided to start looking at the franchise industry, as this was a business sector that had been on my bucket list for a long time.
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