How To Buy A Franchise Safely
December 4, 2009 by admin
Filed under Be Your Own Boss
Buying a franchise can be a viable option to a job and often provides a great feeling of achievement, too. Many people who lose their jobs, especially in a recession, will consider buying into franchising. That’s the first important step – making the commitment to work for yourself.Whatever your situation, the big question is how to buy a franchise?
A serious search starts with franchising magazines and shows. With a multitude of different businesses available, from hands-on working where you’re buying yourself a nice new job to keep you on a steady income and being your own boss, right through to multiple units and building a real chain of businesses.
If you want to build a huge multi-unit franchise operation, make sure the franchises you’re looking at will support that. You want to make sure that your franchise investment is made wisely and doesn’t depend upon you being a superstar amongst all other franchisees just to succeed. That’s why you’ll want to speak with a representative sample of other franchisees to see what the average performance is like.
It helps also if you really enjoy the subject of the franchise you buy. While not absolutely key, if you’re not passionate about your products and the way your service is delivered, what kind of team and therefore customer experience will your outlet provide? It pays to remember that delighted customers are great customers and they’re created by passionate service; passionate service has to come from your heart before your team can give it.
When you’ve settled upon a particular type of franchise, make sure you talk to a few of the different franchisors around. Hold onto your wallet and cheque book in the early stages of your franchise research – ask questions and figure out which people you can work with. It’s the quality of relationships that will largely determine your success – the relationship you have with your franchisor is very important – so make sure it’s somebody you respect and can enjoy working with.
Check out these franchise buying tips…
1. Remember that the franchise cost is generally a lot higher than the amount you pay up front. Look for a franchise that takes a percentage of your sales, rather than a fixed fee.
2. When looking at figures from the franchisor, be careful to understand precisely what costs are involved too. It’s quite possible to have sales revenues that look healthy but which produce no profits because of a big expenses list.
3. Get some good expert help. The cost of the franchise up front is a large amount and a few hundred bucks on good quality advice and education can save you thousands later.
4. You’ll want to find somebody very experienced to review your franchise agreement in detail for you, to avoid loopholes in the Latin-like lawyer speak that franchise agreements are written in. When the franchisor tells you the franchise agreement can’t be changed because “head office won’t let me”, or “we like to keep everybody on the same contract”, just ignore that and insist on whatever changes you personally want. Don’t be pressured into signing an agreement that feels wrong to you – you can always find another franchise or buy an existing business and so they need you more than you need them. Ultimately you need to understand franchisee agreement before you sign it.
5. Franchises are a complex and very specialised form of business in their own right. Educate yourself thoroughly to avoid being caught out by lack of knowledge about the way things work. For example, did you know that the franchise agreement has two key purposes – one is to protect the intellectual property of the franchise, the other is to transfer at least 100% of the risk to you, the franchisee. In some franchises you actually carry more than 100% of the risk of failure, because if your business goes under, you’ll still have to keep paying franchise fees, despite not having a viable business.
Finally a word of caution. Beware the small proportion of franchisors who are just out to squeeze you for all they can and don’t care about your success. The Pareto Principle is a fair way to think about most things in life – there’ll be about 20% of the franchises that you should steer well clear of. Like everything in life, things are not always how they appear. That’s how Bernard Madoff was able to swindle $Billions from innocent investors and the same is true in the franchise world – very likeable and influential people are not always on your side.
