How to Mitigate the Six Most Common Fears of First-Time Franchisees
Don’t believe the urban legend.
Don’t believe the business start-up lie that despite working 12 to 16 hours a day, 9 out of 10 business start-ups fail. That urban legend does not apply to franchises, where the franchisor has an interest in making sure its franchisees succeed. Starting a company is lonely, but starting a franchise is similar to marrying into a family. Read more about the difference between a franchise and a business.
The biggest obstacle to starting a business is oneself:
Not knowing the future; not controlling it; imagining ourselves as failures. During the time between having the dream and excitement at the idea of buying a franchise, to the hard reality of the launch, many people get ‘cold feet’. Dreaming is a boost of energy, but when it comes to the real thing, anxiety knocks on the door.
This is because what was once a plan or a curious project, at a certain moment has to become a moment of truth – often when it comes to leaving your job and regular pay cheque. Then all the “what if’s” pop up. Remember what a franchise is all about and that those that tend to be successful franchisees are capable and used to following the rules and operating within a closely regulated system.
Entrepreneurship doesn’t have to be difficult or stressful – it is just a new set of habits you need to develop in your daily life. You won’t need to be perfect or the most knowledgeable to succeed in your franchising business. In no other generation or any other form of entrepreneurship has running a business been as straightforward as running a franchise today.
Still, this isn’t a counselling session, but about practical tips to counter your cold feet. There are ways to improve your likelihood of success. If you do the following, then you should sleep easy at night:
- Carry out your due diligence
- Have experts on your side, such as lawyers or consultants that can assist you when you have questions. Ask the experts here
- Understand the franchise type/industry and the actual uniqueness of the franchise that you are entering into.
- Have the skillset to make a success of your franchise, some franchises require you to have some sort of qualification, and some don’t. Experience in the field is generally the most desired.
- Ensure you benefit from the support and training that the franchise offers.
- Practice good financial planning and if you don’t have the experience in this, there are always courses that can assist you.
How to mitigate the six most common fears of first-time franchisees
Franchisee fear #1: The fear of losing your investment:
Make sure that you extensively study the franchisor’s financial accounts and claims, an auditor can assist you with this. Do your own local market research and competition analysis. Inspect who are the potential customers are, and whether they will pay your prices.
As a franchisee you will be required to have skin in the game and to be a hands-on owner operator that is committed to the business and its success.
Franchisee fear #2: You’ll be sunk by poor cash flow management:
Most early business failures are caused by not having the cash coming in to pay your overheads and for your supplies. Most franchisors have detailed financial plans, models, turnover projections, and cash flow forecasts. Nonetheless, have them reviewed by an expert. Conduct your own research on:
- whether the forecasts are realistic,
- whether rentals of buildings and equipment are realistic for your proposed area,
- what reserves you have for unforeseen increases in any of your outgoing potential payments.
And always be conservative – it’s much better to be surprised that you have surplus funds than not enough. .
The franchisor and the support team offers ongoing business support to ensure that your business is run according to the prescribed standards and to assist in monitoring your financial performance to assist and identify risk and well performing areas.
Franchisee fear #3: I’m not experienced enough, and I’ll make big mistakes:
This should not be a concern for you with a franchise system behind you. It is the franchisor’s job to choose you based on your skills set. Done properly, you can rest easy that you are buying into a business most suited to you, your ability, and your financial and lifestyle goals. The franchisor is always there to support you, initially and ongoing. No franchise is the same and hence the reason each franchise offers training to ‘untrained individuals’ of how to operate the specific franchise as well as on the brand, business structure and its procedures to ensure the franchisee’s success.
Franchisee fear #4: The franchisor rips you off:
You should always have an expert (accountant or lawyer, or both) on your side in the initial discussions to look over the paperwork. And do your own due diligence to put your mind at rest. Successful, ethical franchisors ensure that there is a win-win relationship for all parties involved.
Franchisee fear #5: You’re entering a saturated market:
Do your own research. Just because there are other businesses in your area selling the same product or service doesn’t mean you won’t be successful. Indeed, it could mean that there is plenty of demand to sustain your business. It is even more important to determine if the concept/model you are investing in is suitable for the current environment as well as long term sustainability i.e., will the offering still be relevant and in demand in 5 years’ time?
Franchisee fear #6: Fear of the unknown:
Do all this and sure, you’ll be nervous – but you won’t be filled with fear. Talk to other franchisees and get first hand insights on the franchisor, franchise business, industry and how they are doing.
By Eamonn Ryan