Let’s face it, the reason people look to buy a franchise is PROFIT. No-one buys a franchise to go backwards. Generally, people are looking to earn more money than they are currently earning whilst getting more flexible working hours. Well at least that’s what I was looking for and I don’t think I am too different from anyone else.
But how can you be sure that the franchise system you are buying into will get you this profit and flexible working hours?
Well, it will be all down to the franchisors business model. If I had my time all over again I would look for these five things in a Franchisors business model:
1. Return on my investment
Buying a franchise requires quite a significant investment upon entry. You can expect to spend anything from $20,000 upwards to $750,000 or more. So it goes without saying that when you invest this amount of money you expect a return. If you were to invest this money in a bank, buy an investment property or invest in the share market ideally you would receive a return. Investing in a franchise is no different, but there is one main limitation put on your investment. Your investment has a use-by date and that is the end of your franchise agreement and/or lease. There is no guarantee that at the end of the agreement or lease you will have an asset to sell, so you need to get at least your investment back over the timeframe of your agreement. When you are buying your franchise do a simple calculation. Calculate all your upfront costs and divide it into the length of your agreement and or lease if applicable. Include the franchise fee, asset and equipment purchases, legal and accounting fees and training costs. Be sure that the business you are buying is capable of earning at least a nett profit before finance equivalent to this amount. Ideally it should be earning more than this amount, otherwise you are better off to stick the money in a bank at a low interest rate. That way you won’t have to worry about employees or customers or working on public holidays.
2. Brand Strength
All the best franchise systems have a strong brand. A brand that is unique, easily recognisable and has raving fans who form the customer base. The brand is consistent across all stores, so no matter where you see this brand you will know immediately what to expect. The brand should set itself apart from the rest and define itself to own the market. It should also be protected with trademarks. Be sure that the brand you are buying into is defined, excites people and stands for something; something that you would be proud to associate yourself with; and something that you could be passionate about.
3. Strong Operating System
This is probably the most obvious area to research. A good operating system has operational procedure guides for every job and aspect of the franchise system. At the very minimum there should be a staff manual that includes all job descriptions and a staff induction process. There should be workplace a health and safety system that includes forms such as incident reports, job assessment and manual handling processes. There should be an extensive product guide which not only includes a full product listing and recipes but also includes a detailed suppliers listing. A marketing manual is also highly regarded and should contain a marketing plan listing all campaigns and when they occur.
4. Happy Franchisees
A strong franchise business model has happy franchisees. Happy franchisees are making money, can communicate easily with their franchisor and are happy with their franchisor relationship. They are usually multi unit operators, which demonstrate that they are happy to continue to invest in the franchise system and will be only too happy to recommend their franchisor to others.
5. Accredited Lenders
This is probably the most obvious indicator that the business model is strong. For a franchisor to have accredited lenders they have met all the requirements of the lenders due diligence. This means that the lender has put the franchise business model through a thorough investigation for its strength, longevity and profitability. If the business model is strong then the lending institution is more willing to partner with the franchisor as the relationship is going to be mutually beneficial to both of them.
Deciding on your franchisor is a major decision; you are going to be entering into a long term relationship so it is best to be sure that you happy with the system and a perfect fit before any agreements are signed.
Elizabeth 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.