Mistakes to Avoid when Buying a Franchise
Buying a franchise can either result in great success or dismal failure, depending on how you approach the franchise process, and whether you make the right decisions.
Some franchise businesses have excellent training programmes and operational support, while other franchisors sometimes lack commitment and adequate resources. In addition, certain franchise concepts are ideally suited to your particular set of skills and strengths that you bring to the business which can contribute to your success, while others may not.
Here are some common mistakes to avoid when buying a franchise:
1. Not exploring your business options
When looking at franchise opportunities, people are easily drawn to the allure of the large, well-known brands, and often miss the smaller business opportunities that could be less expensive, but still have strong financial performance.
It is important to remember that the franchise industry consists of much more than just restaurants and retailers. Food and retail businesses make up only a portion of the franchise market.
Franchise opportunities fall into diverse industries and may even include senior care, education, fitness, marketing and automotive services. You will be doing yourself an injustice by not considering some of the alternative options.
Many of these businesses are much less expensive than the restaurant and retail concepts, and may still be able to meet your business goals.
2. Not doing enough market research
Once you had found well-fitting franchise, it is easy to get excited and rush through your market research. Some franchises may look great from afar, but may not be quite what they appeared to be once you have thoroughly investigated them and spoken to existing franchisees for market research.
Existing franchisees can provide you with first-hand information and insights, including the reality of running the franchise and the daily tasks involved, as well as a realistic evaluation of the effectiveness of the franchisor’s training, support and systems.
When investigating franchises, you should talk to about 10 different franchisees, and include a variety of top, middle and lower-performers to get a diverse overview.
3. Underestimating cash flow
It is very important to realise that a business does not generate profits right from the start.
Often, no profits are generated in the first 18 months. Because different franchises reach break-even point in differing time periods, before finally beginning to generate profits, you will need sufficient working capital, to not only cover operating costs, but also your own personal expenses.
Too many people fall in love with the first franchise opportunity they enquire about, and don’t shop around to see what else is available, so that they can compare different concepts, and make sure their chosen franchise is best suited to them.
4. Making decisions with insufficient information
You have to make sure that you gather sufficient information about a franchise opportunity before making any decisions about buying it.
Performing market research will ensure that you make an informed decision before investing a large sum of money, time and energy into the business, and that you have thoroughly compared all the business options at your disposal.
5. No grasp of earning potential
It is vital to be clear about the earning potential of any franchise you buy into. Make sure you have clarity on solid trading figures, and not just estimates.
Speak to existing franchisees to find out how their actual income compares to your income projections.
6. No business planning
Just because you consider buying a franchise with existing systems and procedures, does not mean you don’t need a plan for your business.
A business plan will help keep you on track in terms of what you need to do and how you plan to do it. It is also imperative that you are certain about the time and resources required to make your franchise successful.
By avoiding these common franchising pitfalls, you will increase your chances of succeeding with your chosen franchise.