Buying a Franchise? Look Before You Leap!

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The statistics on the success rate of franchise businesses are encouraging, but Brendon Yu’s success story is not for everyone to tell. Before deciding, ask yourself the following:

1. What’s your personality?

“Understand that franchising… may not be for you,” John P. Hayes told a seminar on the A-Z of buying a franchise at the International Franchise Expo in Washington, DC, last April. In franchising, it’s the franchiser who creates, tests, and maintains the system and the franchisees follow it.  :If you’re not a follower, you’re not going to be a good franchisee”.

Before you decide to invest in a franchise, look at yourself and your personal needs. What do you want to do? Will your reasons for getting a franchise sustain your long-term interest in the business? “Do not put yourself in a situation where your needs will not be met,” Hayes said.

2. What is the future of this business?

“All franchises are not created equal, “Hayes said. “Some are better than others; your job is to seek out the better ones.”

Just because more than 90 percent of all franchise businesses survive does not mean every concept is going to make it. Look deeply into the specific opportunity that interests you. Don’t rely solely on broad franchising statistics. “What matters is the success and survival rate of the franchise concept you want, “ said Hayes.

Look at the potential of that franchise in your target market. Do people in your area use its product or service? How do they use it? If your market requires you to change the system for the concept to succeed there, forget the opportunity.

3. How do you like the franchiser?

Make it a point to meet the franchiser and see if you’re going to like the people you will be dealing with. According to Yu, the franchiser must be trustworthy and have time to listen and attend to his franchisees’ needs.

4. How many franchisees do you know?

Get to know as many as you can. “This is probably the most important step in the process,” said Hayes. Beware of franchisers who claim you don’t need to visit franchisees because you can just as easily observe how the business operates in the head office or a company-owned outlet.

Ask the franchisees you meet these questions: Can you trust the franchiser? Will you buy the same franchise again? How helpful is the operations manual? Is the training good? How much money can you really make? Are the fees the franchiser collects justifiable?

5. Are you up to crunching numbers?

The franchise fee is an upfront payment that will give you access to the franchiser’s system. It will also grant you the use of his brands.

The royalty fee, which is a percentage of gross sales, is remitted to the franchiser who uses it to finance ce his operations and profits from it. When a franchiser says he will not collect royalty, ask him how he will make a profit and provide the support that his franchisees will need.

The advertising fee—usually one to three percent of gross sales—is collected to build a fund for the system’s advertising and marketing programs. The reason behind it is that it will be more expensive for the branches to launch an advertising campaign if they were to do it individually.

Aside from the franchise fee, royalty and advertising fees, there are other costs you will incur when you buy a franchise. You may have to lease space and improve it. You may also have to invest in furniture and fixtures, supplies and training. Plan for how you’re going to survive until the business makes money.

6. Can you write a business plan?

Some franchisers will require you to do your own market study and to create your own business plan. Even if they don’t ask for it, do it just the same—it will help you navigate your course once you go ahead and get a franchise. After all, it’s your time and money that you will be investing.

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