Franchising has enormous potential but there are pitfalls. Keep to these rules and you will minimise the chances of ending up in a hole.
1. Know exactly what franchising is
All too often when you see and talk to people at franchising shows looking for a business, you get the feeling they know they are hard workers, but presume that with a ‘good’ franchise they would have to succeed. Of course, this is not a bad starting point for success, but in many cases when franchisee-franchiser disputes develop it is clear that the franchisee did not understand what franchising was all about. Most banks have excellent publications on franchising, and it would be ideal for any prospective to franchisee to get hold of a disclosure document from a franchisor and go through it with a franchise-experienced lawyer.
2. Franchising is better for team players
Sometimes franchising is promoted as ‘Be Your Own Boss’, but in reality this is not exactly true. Sure, you captain your own outfit – but you are still part of a team. The franchisor establishes a system or game plan, and the guarantees – for all their worth – rest on you following the system which has proved successful elsewhere. If you are a strong-headed individualist you might find franchising too restrictive and frustrating.
3. Franchising is a family affair
The ideal arrangement for franchising is a solid personal relationship between two people who will share the income and the hours involved. Many reasonably priced franchises net better than double average weekly earnings, but involve a commitment of 60-70 hours work a week. Clearly, two people with an ownership interest in the franchise will double the chances of seeing the venture succeed.
4. Don’t do it on a shoestring
A prominent reason why small business operators fail is because they go into business without sufficient money to weather tough times, and this compounds cash flow problems. Let’s face it, you could buy an excellent franchise and encounter a recession. Have sufficient back-up funds when going into a franchise.
5. The first year could be the worst
Many franchisees confess that the first year is the toughest. Even though many franchisors have excellent training programs, the reality of slogging out 60 plus hours a week, coping with customers, staff, quiet times, and even very busy times while you learn the ropes of the franchise and about business, can make life very hard.
6. Franchising is not riskless
Just because a franchise is well-known and big does not mean you can’t help but succeed. For example, the success story of some franchises could rest on the initial novelty of the business. By the time you join, one or two rivals could have emerged to make the chances of your success considerably slimmer. And again, the shopping complex you locate in could prove to be a ‘dog’, despite the pre-opening hype which everyone except the shoppers believed. Also, a franchisor could go broke, attracting bad publicity which could jeopardise your investment in a franchise.
7. Be at one with your franchise
This gets back to the idea of being a team player. Once you realise that you are a part of a collective of business people trying to make the total franchise be loved by the buying public – let alone making yours the best franchise in the group – it becomes essential that you know your product intimately. You must have a conviction that your product or service is quality number one in relation to its price. Then and only then will you make your franchise work.
8. Do your franchise homework
To be ready to sell on day one of opening your franchise, you must do your homework so you know your system and product intimately. Obviously, the best time to come to grips with this knowledge is before you outlay any of your hard-earned cash. Sift through all the disclosure documents provided by the franchisor. Talk to other franchisees in the system. Look at your potential rivals as though you could buy into their system if it measures up better. Remember, franchisors are trying to sell something, so let the buyer beware!
9. Call in the accountants, lawyers, franchise experts
Once you are certain that the franchise is sound and suits your personality, don’t be scabby, pay for expert advice. Make sure your lawyer has worked through franchising documents before – it not only saves you time and money, but ensures your guide through the franchising legal minefield is not a work-experience navigator. Also, sit down with an accountant and listen to the advice you get. These hard heads are often good at seeing the worth of a business. Franchising specialists can be good, but make sure they don’t represent the franchisor as well! This has happened.
10. Do it with a ‘fair-dinkum’ franchisor
This is easier said than done, but there are some starting points to help you find such a franchisor. Being a signatory to the franchising Code of Practice is a plus, though some scoundrels have done this while some good franchises have not. The best way to test your franchisor is to talk to lots of franchisees as these people have dealt with the franchisor for some time. Finally, the better franchises do tend to be relatively expensive – there are some good cheap ones too – but price often reflects value.
11. DON’T GET CAUGHT IGNORING THESE COMMANDMENTS
The person who franchises common-sense could make a billion. It is amazing how decisions are made too hastily and repentance is done at leisure.
In business, you aren’t dealt luck and you can’t afford to act on emotion.
Buying a business is a major decision. It requires your common-sense and the additional sensible advice of experts. Pay for that advice. Don’t get caught impulse buying. You can’t afford to.
So this is the Eleventh Commandment. Now go and sin, business-wise, no more!