Buying a franchise can be a great move for those who don’t want to start a business from scratch. A franchise owner acquires a model that’s established in every aspect, from branding to pricing to a ready clientele, with many business options including printing services, quick service restaurants, cleaning, retail, automotive and so on.
Franchise owners may acquire all of the advantage of owning a branded business; however, this still doesn’t guarantee success. It certainly strengthens the liklihood of success though with an about.com article showing franchises enjoy a success rate of almost 90% as compared to only 15% for businesses built from scratch. It is still critical to do your due diligence to increase the chances of making the business work. If you are thinking of investing in a franchise, there are six factors you should consider before taking the plunge.
1. Personality and skills
Becoming a franchisee is a big leap, and it requires ambition, drive and an enterprising outlook. You should evaluate how well your personality matches the franchise business you are considering. Thinking of running a Hungry Jack’s? How much do you know about food service and management? Franchises are not just a ‘business in a box.’
You should also have the drive to learn the tricks of the trade to run a successful business. Try to better your soft skills early on – community, priority management and conflict resolution.
2. Risk tolerance
Investing in a business is risky; franchises are no exception. And it’s not just your money that goes into starting a business, your time and energy are also invested. There will be certain months of the year when you and your team will have to work harder than usual. There will be unsolicited costs, team-related issues, and more.
It’s vital understanding the risks associated with any specific franchise option but also knowing where your risk level sits. A franchise that requires a higher investment, ultimately carries more financial risk. Be aware of all of the factors and take this into account before buying into a franchise.
3. Understand the ‘policies’
Every franchise business has policies as they help in maintaining the consistency of the products, the services and the brand. And you must be comfortable following them. In fact, if you believe in the policies and they align with your core business philosophies, they may not be a hindrance at all.
The best time to understand the policies of the franchisor is during the research process. Ask as many questions as possible to clarify what’s expected of you. Speak to fellow franchisees and understand how they conform to the franchisor’s requirements.
Again – do your research before you arrive at the decision.
4. Finances in order
Make sure that you have your finances well and truly in order before signing a franchise contract. Whilst there are usually setup and ongoing fees for the franchise agreement itself, also consider inventory, hiring resources and marketing the business.
If you don’t keep these initial overhead costs in mind, your franchise dream may not work as you planned. Therefore, it’s necessary to have a source of capital available if anything goes awry with your first plan of action. There is no such thing as being too prepared for a franchise owner!
5. Research, research, and more research
There’s no way to determine if you’re making a good franchise investment if you don’t do your research.
Speak to other franchisees when considering your options. Look to turn to them for help, guidance, and advice. You can’t run a successful business without being open, and that’s a crucial part of the research process.
Do your due diligence and make sure the franchisee will help you create a sustainable durable income over a period of time.
6. Business plan
The biggest mistake any franchise owner can make is not having a business plan. Even though your franchisor lays down the blueprint for you, it’s up to you make the annual projections of your business.
Study the past performance of the franchisees and compare the pros and cons. Check out what the industry experts have to say and then create a business plan that fits your and the franchisor’s goals.
Over to you
Before buying a franchise, you should complete a rigorous evaluation to be approved to run the business. Choose a domain that suits your personality, skill set and risk tolerance. Your job is to duplicate the success formula of the franchisor and to make it a success!
