Questions you need to ask before you buy a franchise
Question

The franchise model has proven to be hugely popular and successful all over the world. Franchise owners brought together under one trademark or brand will achieve things that individual businesspeople simply could not. Centralised advertising, buying power and the exchange of ideas are just some examples of these synergies.

However, buying a franchise is not a guarantee of success. Carefully evaluating yourself and the franchise you want to purchase, will greatly improve your chances of success. Therefore, would-be franchise owners need to ask many questions and do thorough research before plunging headlong into the business, and investing their hopes and dreams, and often, the bulk of their assets.

Before buying a franchise, there are 10 important questions that you need to think about carefully and answer honestly: 

 1. Will I be willing and able to take on the responsibilities for managing my own business? 

Before buying a franchise you need to carefully analyse your personality and motives for owning your own business and you need to ensure that your ‘house’ is good order on a personal level. While the franchise system will provide start-up training for your business and offer ongoing support, as the franchisee, you must be prepared to accept the responsibility of managing the business yourself.

Most franchise’s success is heavily dependent on hands-on management. Therefore, you will have to be willing to work harder and longer hours than ever before in your life. You will also have to be willing to mop floors, empty rubbish bins, as well as hire and fire employees, and deal with customers who are upset or dissatisfied.

 2. Will I enjoy the kind of work in this particular franchise? 

You have to determine your interests and the types of industries and business you may really enjoy, right from the outset. Sometimes people buy a franchise only thinking about how much money they will make, without considering at all whether or not they will enjoy the actual work the franchise owner will have to perform on a daily basis.

You can visit www.whichfranchise.co.za for a listing of the different types of franchises available in the marketplace and you can then search the categories to locate those franchise companies that meet your criteria.

3. Am I willing to follow the franchise system to the letter? 

The consistency of the product or service offered to customers throughout the franchise system is key to franchising success. If you are too entrepreneurial and do not like to conform to a predetermined formula, you should think very carefully before buying a franchise.

4. Do I have a personal history of successfully dealing with people? 

Most franchised businesses are based on dealing effectively with people. It is therefore imperative that you interact well with your franchisor, other franchisees, your employees and your customers. A negative, critical franchisee can be detrimental to the entire franchise system. Unless you have a track record of good relationships with employers, supervisors and fellow employees, you could be wasting your own valuable time, energy and money, as well as that of your fellow franchisees and franchisor.

 5. Will I be able to fund the franchise without stretching my resources too far? 

One of the main causes why businesses fail is lack of adequate capital. While the franchisor will be able to give you a good idea about start-up costs, these may vary due to different unexpected expenses and costs.

Therefore, you will not just need enough money to open your franchise, but to run it until it becomes profitable. For some franchises, it may be a few weeks, and for others it may take a year. Remember, it is better to start out with more money than you think you will need, than too little.

6. Have I carefully studied all the legal documents? 

Franchisors are required to prepare a Disclosure Document that will give you all the pertinent information you need about the franchise. It normally also contain the Franchise Agreement that you will be required to sign when you purchase the franchise. It is important that you read these documents personally and don’t solely rely on your legal advisor.

7. Does the franchise I’m considering have a successful track record? 

Obtain as much information as possible about the directors of the company, their business backgrounds and how profitable the franchise has been. Normally, not as much information is available on new franchisors, and you therefore have weigh up the advantages and disadvantages of purchasing a business from a new franchisor at a lower cost, against taking the higher risk of failure.

A new start-up franchise may offer you the opportunity to get in on the ground floor, but it may also mean that the franchise has not had sufficient experience to fully develop the system. For this reason it is important that a reliable accountant review the financial analysis of the franchise to determine whether it is a solid company.

 8. Are the other franchisees generally happy and successful? 

It will be time well spent to contact a number of franchisees to discuss their experience with the franchise. The rule of thumb is about 10% of the other franchise owners or a minimum of 10.

Questions to ask them are: Has the franchisor followed through on commitments? Did franchisees receive adequate training? Would they buy the franchise again? Is the business profitable? What advice would they give you?

9. Do I like the franchise’s staff with whom I will be working on a regular basis? 

One of the most important elements of a franchise is the ongoing support and contact you will have with the head office. You must, therefore, feel comfortable with the people you will interact with on a regular basis for several years to come.

10. Do I genuinely have my family’s support? 

Managing a franchise is a full-time job and sometimes your new business will make demands on your time that your family may resent. Personal and family time may have to be sacrificed. Therefore, your family must be genuinely supportive of your decision to buy a franchise.

Here are further questions to ask once you have decided on a specific franchise to invest. This will ensure that you get a realistic picture of what life as a franchisee will be like:

  1. What is the turnover rate? Scrutinise the Disclosure Document to see how many units have changed hands in the past year. A lot of sales can be a sign of trouble, especially if the franchisor is having to buy up the units to keep them from closing down.
  2. What’s the failure rate? Franchisors will tend to blame closures on lazy franchisees who did not comply with the system, but a high percentage of closures could be a red flag.
  3. Why did your franchise fail? Not many prospective franchisees take the time to track down franchise owners whose units closed down to find out what happened. Take the trouble to find them and to ask: was it lack of franchisor support, or did the franchisee not apply himself, or was it a bad location? These answers may reveal problems that would affect your franchise unit.
  4. Would you buy this franchise again if you could do it over again? Ask this question of existing franchisees. Try to go beyond the list of successful franchisees the company will give you and find a more average performer. The answer here will speak volumes about whether this is a business that builds wealth and helps create financial independence, or is just a daily grind where you end up with the minimum income.
  5. What is it really like to work in this business? Too few prospective franchisees take the time to ‘shadow’ an owner to see what it is really like to run a franchise. Many people think a successful franchise can run on autopilot and believe they will only have to drop in occasionally. But this is a completely unrealistic view of what it’s like to run most franchises. You have to be prepared to be on your feet 10 hours a day overseeing every aspect of the business.
  6. How are conflicts resolved? Find out what happens if you disagree with a policy or procedure – is there mediation available? Are they inflexible in terms of policy or procedures, and do they value unit-level innovation? In this way you will be able to determine whether this brand fits your level of entrepreneurial creativity.
  7. What percentage of the chain is franchised? In most successful franchise systems, the majority of units are franchised, with just a few company-owned units where the franchisor can experiment and try out new ideas. If there are many company stores, the parent company may not be as sharply focused on franchisees’ success as you would like, as they must also pay attention to making their own stores profitable. You may also find yourself competing with nearby company units and this can put you at a competitive disadvantage, because these stores do not pay royalties.
  8. What support is offered beyond the initial training? What happens if you need more support after the initial introduction and training? Make sure your franchisor will not ‘disappear’ once you’ve launched.
  9. What business experience do franchise managers have? Some franchise companies start selling franchises before it has been proven that the business model is really profitable. Be especially cautious when it comes to new franchisors, and make a point of determining whether the franchise team has prior management experience in the industry in which the business will be specialising.