THE DO’S & DON’TS OF PURCHASING A FRANCHISEComments Off on THE DO’S & DON’TS OF PURCHASING A FRANCHISE
THE DO’S & DON’TS OF PURCHASING A FRANCHISE
By; Myeshi Briley,MS,HS-BCP
If the idea of launching a business from scratch seems overwhelming, a franchise with a well-established company might be more appropriate for you. With a franchise, you’ll gain the practical experience necessary to one day run your own company. However, there are a few Do’s and Don’ts to think through before deciding if a franchise is a suitable option for you.
Do your homework.
Buying a franchise is a piece of cake, it’s picking the right one that’s tricky. Stay thoughtful and alert when investing. To minimize risks, obtain as much current information on the franchise as you can. As the Spring-Klein Chamber President, I’ve learned how vital it is to research the franchise and ensure proven turnkey operations with a productive operating history are currently in place. Decide if you have the kind of capital needed and if you’re willing to take any risks that come your way. With thousands of franchise opportunities available, the only tactic for choosing the best one is by studying your preferred pick in full. Go to trade shows held by the franchise or get in touch with a franchise agent. Look for a franchise where both owner-operators and absentee owners are successful, because that demonstrates that it’s concept is strong and sustainable. Talk with and observe other franchise owners to discover how their franchise is doing, if it has it been a good investment for them. Find out what their profit is like. What kind of training does the franchise offer? What level of support, technical and otherwise, do they offer. Ask the owners as many questions as you can, without getting on their nerves, of course. And, compare as many franchisees as possible. Also, if you already own a business don’t pick a franchise that would compete with your current clients.
Don’t rush your decision.
All sound business decisions entail planning and accurate computations of the risks involved. Take all the time you need to make an informed decision. Don’t let anyone pressure you to rush through a franchise process. Ethical franchise consultants proceed at the pace you set, not the other way around.
Do develop a business plan
Before you buy a franchise, you need to create a feasible business plan. You can access information online to help you get started such as the business plan resource pages of the U.S. Small Business Administration or their video on franchising.
Don’t shy away from Memberships
Many consumers like using membership subscriptions, paying a flat monthly fee in return for unlimited services. Membership-driven businesses decrease cash flow issues and help you build customer loyalty with your core customers.
Do find a franchise offering above-average profitability.
You want a profit in the double digits, but are realistic, don’t expect net margins to span 30% or more.
Don’t just choose a regular transaction-based business.
Find a franchise that fulfills a need and lends itself to repeat business. In other words, go with an ongoing, necessity-based business that focuses on the consumer experience. You want to provide a unique, memorable experience not readily available elsewhere.
Do get professional help.
Get a good lawyer to review the legal documents, don’t do it yourself. And, have a good accountant review the franchise’s financial statements and projections. Check for any pending litigations, lawsuits or cases against the franchise. Also, make sure you fully understand the UFOC and your purchasing contract. And, read your Franchise Disclosure Document thoroughly, it’s there to protect you from unknown variables.
Don’t buy a franchise that demands an initial franchise fee of $200,000 or more.
The one-time initial franchise fee might be as low as $5,000 or higher than $100,000. The average fee for a single unit is $20,000 to $30,000. Make certain there is minimal build-out time. Low cost and fast speed-to-market are crucial. Don’t spend more than you have. Though well known established franchises have less risk, the investment costs are high. You need to know if you have that much money, and if you do, then you need know when you’ll be able to make it back.
Do have an exit strategy for your franchise Have choices in order such as willing the business to a family member, selling it or expanding to multiple franchises.
Don’t…ignore your instincts.
Trust your intuition. If anything doesn’t make sense to you, ask questions until its clear. It’s your future and your hard earned money, go the extra mile to protect yourself during this intricate process.
Do think into the future with an open mind
Be creative, choose a franchise with the potential for synergistic product line additions, and think of what the concept could evolve into.
Don’t Trust people too easily.
It’s your money and time. Don’t just listen to what other people say, make sure you thoroughly understand the business you want to get into. Also, don’t settle; don’t jump at the first opportunity that comes your way. Choose a business you really want with a concept that speaks directly to you.
Do give back to the community.
Franchises that give back to the community have the best chance of lasting. Franchises that are involved in their local Chamber of Commerce do very well. Choose a franchise that is socially responsible, consistent with the needs and interests of your target demographic. Look for one that encourages activities like volunteering, and sponsoring programs like youth sports teams, and charity fundraising marathons and other events.
These guidelines will help you make an informed franchise decision. Without thorough research and preparation, you can run into unexpected obstacles and risks. It’s important you understand what you’re getting into and believe in your franchise concept. Franchising isn’t for everyone, but if you do your homework, and know what to expect, owning a franchise can prove to be a rewarding experience both financially and professionally.