Buying a franchise is one of the most important business decisions you will ever make. It ranks right up there with buying a house. After all, the financial commitment for a house really isn’t much different than the total investment required to buy a franchise. Truth is, starting your own franchise is far more complicated than buying a house. A typical Franchise Agreement has a 10-year term. To operate your business you will likely need to hire and fire personnel, manage inventory, provide customer service and so much more every day. The franchise journey is not an easy one. Make a smarter choice by following these guidelines.
1) Do You Have Enough Working Capital?
When doing your due diligence on a franchisor don’t necessarily accept their estimates of how much working capital you’ll need to get to the break even point. The FDD (Franchise Disclosure Document) will have a list of all current franchisees with telephone numbers. Make a point of calling a handful of them and very directly ask them how much working capital they needed to get to the break even point. The number will vary but you will have a much better idea of what you will need when the amount comes direct from the current franchisees.
Don’t forget to do a deep dive into your own living expenses now and in the future. To have success, you’ll want peace of mind when it comes to having enough cash on hand to manage your family expenses. Always, have a little more than you think you will need.
2) Do You Have The Right Skill Set?
Franchisees fail when they buy a franchise model that doesn’t fit their personality, their skill sets and their passions. Yes, buying a franchise with a strong, proven ROI is important but if you hate the day to day business, you will not succeed in the long term.
Be sure to buy a franchise that you think you’ll love to operate and look forward to going to every day. You’ll be spending 10 to 12 hours there everyday you better love what you are doing. If you don’t have that, stay clear and find another franchise opportunity that does.
3) Do Not Take A Franchises Proven Success Model For Granted
Yes, some franchises have a long term record of successful franchisees. They may be a household franchise brand that might be very popular in your community. Do not take this for granted and think the day to day operation of your business will be easy. Do you have the right location for your franchise to thrive? Are the demographics of your location suitable to the franchise model you have chosen? There are many intangibles that can effect the success of your business moving forward.
4) Have You Vetted the Management Team?
Who is running the show? Yes, the franchise may have a proven system of doing business but franchise companies have to make big decisions everyday. Decisions that may have an impact on your franchise five years from now. Are they looking toward the future from a product or service or technology point of view?
Who will you be working with most of the time? Do you like them and do you get along? Do you respect their business acumen? If you have a personal conflict with someone you will be working with daily, it may create a serious problem down the road. .
How to avoid this: Get to know the management team from top to bottom. Are you comfortable with who they are and do you think you can work with them for the next 10 years? If so, you are good to go.
5) Ask Other Franchisees About Franchisor Support & Training
Franchisors sometimes make promises they don’t keep. Training and ongoing support from the franchisor are vital to your success. Talk to other franchisees that have been around a while. Ask them if they feel like the franchisor did a good job training them. Ask them if the franchisor was there for them when they needed support.
If you talk to several franchisees that are disappointed in the initial training or ongoing support, you may want to reconsider your decision. Find a franchisor that will provide the kind of support you will need to be successful. How to avoid this:
Owning a franchise comes with inherent risks that you may not have control over. Do your best to ask all the right questions of management and current and former franchisees. Making a smart choice in a franchise is your goal from day one.