What is the first thing to do when looking to buy a franchise?
Tuesday, December 03, 2019
Ask lots of questions! You can never ask too many questions of too many people, when making such an enormous decision. Trade shows, internet, franchisors themselves, franchisees, industry groups, Departments of Fair Trading. All these groups can provide information and feedback.
You will probably already have a fair idea, or a short list, of franchise groups that you think will fit you goals and skillset, but any franchisees, once they have settled upon and committed to a franchise, indicate to us that it is very different from their initial intention. Stay focussed on franchises which fit your goals and skillset.
Things to look at:-
1. Length of time established (short may mean that you are in on the ground floor, provided your skillset permits, but long may mean good systems and track records);
2. Location, territory, saleability, costs versus return, reputation, trading history, growth pattern, how that growth has been achieved (organically, through venture capital, or by use of area masters);
3. Your role in the franchise (entrepreneur, manager, technician, sales, accounting or largely hands-off);
4. Recent sales pattern (are established franchisees dropping like flies?)
5. Multiple franchise owners (are there existing franchisees that have multiple territories, are new territories available and, if so, where?)
6. Length of training;
7. Capital equipment requirements;
8. Market forces (is this a sunrise or
industry likely to explode/implode/be subject to Government regulation/be swamped by a battleship competitor?) greenfield
9. Is the industry in its adolescence where competition between service providers is rife?
10. Is the industry in its twilight where margins are thin and demand is waning?
11. Is there a big difference between branded franchises and unbranded non-franchise individual traders?
12. Is the franchise brand strong and well known?
13. What is the reputation of the franchise brand?
It is important that you speak to as many people as possible to get their impressions across this range of characteristics. Some franchisees will even ask to work in a branch for a time to get the “warts and all” understanding of the business. Regardless of the amount of homework that you do, ultimately, you will need to be comfortable that the franchise suits you, and that you will be getting value for your franchise fees and royalties.
Common mistakes when buying a franchise:-
1. Lack of homework;
2. Emotional response;
3. Cash register fever;
5. Failure to engage any/decent advisors;
6. Feeling pressured into finalising a decision;
8. Goals/skillsets mismatch;
9. Poor franchise group;
10. Lack of an exit strategy.