I wish I had known what to look for in a business model when I was looking to buy my franchises

By Elizabeth Gillam

Investigating business modelYou are making a big investment when buying a franchise and to an extent you are putting up your money without fully seeing what you are buying.  It is not like buying a home where you can walk through the house many times before signing the contract.

After the contract you can do building and pest inspections and pull out if all is not quite up to the mark.  But when buying a franchise you are putting up a similar amount of money, yet you cannot do any in depth inspections.

So here are 10 quick questions to ask when investigating in a franchise business model. 

1. Day to Day operations

The success of any franchise system is in the actual system, how detailed is it and does it cover all operations.  This is where the majority of franchisee disappointment comes from. Ask: How detailed is the operations manual.  Ask both the franchisor and franchisees in the system.

2. Training

As you purchase your franchise there will be an incoming training programme. Ask: How much does it cost, how long is it, what does it cover and where do you have to go to undertake the training.  Does the training continue throughout the term of the franchise agreement and if so how is it delivered?

3. Experience Day

The closest you will ever get to doing an in-depth inspection of the business model is when you are working in it.  A minority of franchisors suggest you do an experience day in-store.   This is so they can get an idea if you are a fit for their brand.  But I recommend that you ask any Franchisor that you are considering working with; “can I have an experience day working in store”?  

4. Point of Sale

There are many point of sale systems in the market some can help your business and some can hinder its operation.  Ask:  What Point of Sale system do you operate?  How easy is it to operate? What reporting does it offer?

5. Intellectual Property

Be sure that the system you are buying into cannot be copied or reproduced leaving you with an undervalued asset.  Ask:  What trademarks and patents does this Franchise hold?

6. Sites and territories

Be sure that you have a secure territory to operate in; you do not want another franchisee setting up in competition with you close by.  Ask the Franchisor, What territory and/or sites am I allowed to operate and expand within?

7. Disclosure Document

The disclosure document holds information that will affect the success of your business.  Be sure you know all of the contents and areas that could affect how you operate your business unit.  Ask : Can I have a copy of the Disclosure Document?

8. Equipment

Know what you have to purchase and what is needed to run your business.  Does the purchase price accurately reflect the cost of these items?  Ask:  Can I have a fully costed equipment listing?

9. Fees

Compare what you have to pay for running the system.  Ask: What are the royalties, franchise fees, system fees and any other regular monthly contract costs eg:  online training system, Point of Sale maintenance fees and technology contract fees?

10. Profitability

The most important reason to be considering franchising or any business for that matter is the profit. Ask: What are the expected profit margins? There will be expected costings detailed in the disclosure document but they will be very broad.  Perhaps this question is better asked of an existing franchisee in the system.  

So really there are more than 10 questions here, but remember the only silly question is the one you don’t ask. You can never be too informed when buying into a franchise system.

Elizabeth GillamElizabeth Gillam founder and CEO of Franchisee Success creates High Performance Franchisees. Having owned and operated three franchised food businesses; Boost, Healthy Habits and Bucking Bull; she knows what it takes to operate a profitable food franchise. In her recent book, Upsize your PROFIT – 6 steps to running a profitable food franchise she outlines how franchisees can ACE their franchised business unit. If you are not sure how to do your due diligence here is a link to help you on your way http://bit.ly/1U8J97i

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