Becoming a franchisee may appear to promise many benefits to people from all walks of life. If you’re exiting a corporate career, the opportunity to be your own boss can be very attractive. To a parent with young children and a part time job, a franchise business might provide a better work-life balance and more financial stability.
Whatever your circumstances, becoming a franchisee is not a frivolous decision. Whether or not you are successful will be determined by the due diligence you conduct prior to taking the leap. This is a major life decision, taking the time to do your research is a must. In this article, we will explore some factors you should consider before buying a franchise.
Choosing the Right Franchise
The question of choosing the right franchise for you could be an article unto itself. In fact, FranchiseED has a unique online course that will guide you through how to identify what franchise is best for you. You can view the course here.
Here’s a couple of quick things to remember: Be mindful of what your capabilities are. For example, some franchises require an advanced capacity for networking to drum up business. If you’re not comfortable engaging these soft skills, you will struggle in this environment.
You should also ask yourself: Do my personal values align with those of the franchisor’s brand? You will be expected to conform to the franchisor’s policies regarding things like the products or services you offer, pricing, uniforms and more in order to maintain consistency across their network. If you are not dedicated to being a representative of their brand, then that franchise is not for you.
What Are Your Rights and Responsibilities?
Before entering into an agreement with a franchisor, it is essential that you understand your rights and responsibilities as well as those of the franchisor. These will be provided as part of your franchise agreement, and it is crucial you read through the agreement with the assistance of a legal professional. It is important to make sure the lawyer you work with has expertise in franchising as this is a highly specialised field.
Under the terms of a franchise agreement, the franchisor may be required to provide ongoing training to the franchisee, ensure the franchisee has access to the stock necessary to carry out business operations, coordinate a marketing plan on behalf of franchisees and more.
However, if you had dreams of lounging on the beach while your franchise business took care of itself, you might be in for a shock. Running a franchise requires a serious commitment to ensure the proper management of staff and general operations. Franchisors also often require franchisees to dedicate a certain amount of time to the business personally. Taking the time to fully understand what’s expected of you can save you a great amount of disappointment down the road.
What Are The Financial Implications?
Franchises often involve significant initial startup costs that vary from the tens of thousands of dollars and into the hundreds of thousands. Franchisees are also generally required to pay recurring fees on a weekly or monthly basis (called royalties) to cover ongoing franchise support, as well as potentially contributing to a group marketing fund.
Franchisors are not required to provide projected earnings prospective franchisees can expect to make. It is your responsibility, then, to become familiar with the industry you intend to enter. As part of the franchise agreement, franchisors are required to provide a list of current franchisees and also those who have left the system. It is very beneficial to contact as many as possible, while being respectful of their time, to get a sense of what revenue you can expect to make as well as any unexpected costs they faced.
Getting your head around the relevant financial information can be daunting. It is recommended to draw on the expertise of an accountant or financial advisor with franchising knowledge to assist you in making informed decisions.