Buying A Franchise? Ten Questions That Can Save You Some Pain

Image Credit-Sebastian Herrmann-Unsplash

So you want to own a franchise? There are many reasons why you want to do it: business owner, self-employed, setting your own working days/weeks, helping others, creating jobs in your community. The excitement and enthusiasm are palpable, and you can’t wait to get started. However, before investing any of your own money to the Franchisor, you need to get robust in sourcing answers to these ten questions.

1. The Power of Why?

Everything starts with why. You need to understand the motivations in making this life-changing decision. Are you attracted to the franchise name? Why this franchise? Do your skills or past experiences attract you to this franchise? What does becoming a franchise owner mean to you? How did you learn of this franchise opportunity? Are you starting as a sole trader, or with partners? Can you start the business without buying a franchise? Sit down with a pen and paper, and get serious about understanding your motivations.

2. How did the Franchise get started?

If you’re buying into established global brands such as McDonald’s, Subway, Costa Coffee Dunkin Donuts, or Hilton Hotel and Resorts, this is a lot easier. However, not all potential new franchise owners will be pursuing these brands. Start with doing your research on the founders of the franchise.

What is their experience, backgrounds, skills, and qualifications? Do they align with any of yours? Where did the initial franchise begin? Once you have the answers to these questions you can start to build a more comprehensive understanding of how your motivations align.

3. Why did the initial founders franchise the business?

You need to understand their why. How many years did it take to develop the business model? Did the location of the initial franchise make it easier to generate returns? Why did they not expand organically? Did they want to reach other geographical markets quicker? If so, Why?

Does the business model expansion into other territories provide you with confidence? How confident are you in matching their passion, commitment, and desire to establish a franchise? There are thousands of franchise opportunities, so get selective in choosing one that aligns with your passion.

4. How much finance do I need to get started?

These numbers are the most crucial for you to understand. There will be an initial investment to be made at the outset, to secure the franchise for a given location. These costs can vary dependent on the success of the franchise you are buying. The break-even point of your investment will be determined by this calculation.

You need to have money in reserve to help you reach the break-even point, as every franchise location yields varying results. For example, you may be based in a city, where existing businesses provide services similar to yours.

5. What are the ongoing costs including royalties and marketing?

The royalties are ongoing costs paid monthly to the franchisor for the rights to operate the business. They are usually a percentage of your monthly revenues, and you need to know what they are as this impacts your bottom line. These royalty payments can be difficult to digest at the outset, so make sure you’re comfortable with this approach. The marketing costs are usually uniform and can be spread across all franchisees, helping reduce costs.

There will be promotions, special offers, and marketing platforms all focussed on driving customers to your business. Again, understand when these may occur throughout the year, and budget for them.

6. Are the existing franchise owners generating a return?

Before you purchase a franchise you need to receive a copy of the Franchise Disclosure Document, as part of any due diligence. In this document, you will find details of every aspect of the franchise including financials of the original franchise business. You must understand all details within this.

Get a legal professional to go through it with you. You can find details of existing franchise owners or locations on the Franchisor’s main website, speak to them also. They provide real insight into the operations of that franchise, and the assistance they receive from the Franchisor.

7. Where will you be located?

One of the most important decisions before you purchase any franchise. Is the territory lacking in services you will provide, or overpopulated? What kind of customer are you targeting? What is there economic profile? What are their buying habits? How much competition is already established there?

Is there parking or transport that enables easier access? How must footfall on average moves through the area where you will set up? Is the business positioned in the town centre, or the outskirts of the city? These are all core questions you need to investigate robustly before starting.

8. What on-going support do you receive?

These are crucial in helping you make a purchase decision. You will require support in those early stages while you find your feet. Is there a dedicated service via phone or email to answer questions? How long does a response take? Is there an online chatbot? What is the initial support in marketing, sales, and operations? You must know what support is available, as there will be a 100 questions you need answered before you start. Beginning any new business can be daunting, so having access to support that can help you is paramount.

9. What is the size of the Territory?

I have stated the importance of where the franchise might be located. Now you need to understand the size of the territory. For example, you may find large brand chains in every major high street, and they are all generating returns. How is this possible? They know the footfall which they will have access to daily, the power of the service does the rest. E.g. Costa Coffee.

You need to explore the impact if the master franchisor places further franchises in your location. In most major cities they can break it into points such as North, South, East, and West. It might also be achieved through geographical reach. Be clear on the size, reach, and potential for customers before you begin.

10. Who is the official franchise trade body in your country?

These organisations can provide advice, guidance, networking, and education that will help inform your decision before you purchase. They can also provide connections to legal and accounting experts that you will require. All franchises have standards, laws, and policies specific to trading, so understand these before you begin. By connecting with a trade body, you can have a lot of these questions answered before you begin. It will involve a membership fee, however, these are not costly for the support you can receive.

So, you want to start a Franchise?

The question posed at the beginning of the story. If you’re going to part with hard earned dollars understanding the above is essential. These answers will help inform whether it’s right for you. It would be advisable to carry out a self-audit on yourself, or take a personality test.

These can help you understand if your traits, values, and beliefs will act in your favour before you begin. Remember staring a franchise still carries a lot of the risks associated with a new business. Get insights, reports, and all the detail you can find. Enjoy the journey.

This story was previously published-Buying a Franchise? Ten Questions That Can Save You Some Pain — The Good Men Project



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Michael J Mc Cusker-The Resilient Irishman

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