We have outlined below some of the common mistakes that people make before buying a franchise. It is essential that you recognise these mistakes so that you can avoid making them as they can ultimately lead to franchise failure.
Not understanding your franchise agreement
Anyone thinking of buying a franchise should know their franchise agreement inside and out, no matter how long it is! If you do not fully understand it and know what it entails, you will not know what your requirements are as a franchisee and what you should expect in return from the franchisor.
It is vital that you seek legal advice from a franchise lawyer. Though you may have a family lawyer who you have always used in the past, we urge you to only use one who actually specialises in franchising. We have heard time and again from people who did use a lawyer, though not a franchise one, and the franchise failed as they didn’t fully understand the franchise agreement. A franchise lawyer will have looked at hundreds of agreements and will know what to look out.
You can go over any queries you have with your lawyer before taking them to the franchisor if need be.
There may be little you can change in the agreement but you can get things added or additional documentation given, if you need clarification on certain points.
Not speaking to enough franchisees
A vital part of your franchise research should be speaking to franchisees in the network. The franchisor should give you a full list of all franchisees and not just a chosen few. If they only give you one or two to meet with, you can be ensured that they will be the best performers in the network and probably not representative of the franchise as a whole.
You should speak to as many franchisees as you. Even if someone does have a gripe with the franchisor, by speaking to many franchisees you will get an idea if their issue is a company-wide one or solely just the problem of that franchisee.
Ask the franchisees as many questions as you like e.g. what would they do different if starting again, any problems they have had, is the support and training they receive from head office adequate, is the franchisor always happy to help, what their first year of business was like etc.
You can also ask the franchisor if you can work alongside a franchisee to get a feel for the business. Again most good franchisors should allow this.
Make sure you speak to franchisees in a similar geographical area to the one you would be operating it. This will give you an idea of what to expect in your franchise business.
Speak to those franchisees that have been in the network for a long time, and also those who are new, this will allow you to understand their different experiences and maybe how things have developed in the franchise over the years.
Also ask to speak to franchisees who are doing well and those who are not doing as well, and find out the reasons for this. This will give you an understanding as to whether the problem is a one-off or one that could affect several franchisees if not all.
If the franchise is one that allows you to develop the business and buy multi-units, then make sure that you also speak to a multi-unit franchisee.
Not identifying franchisees that have failed and why
How many franchises in the network have failed? The franchisor should be open to telling you about any franchises that have failed and the reason for it happen. It is vital that you are comfortable with their answers. If allowed, speak to any failed franchises. If there is a common theme to the failure of the businesses, then it may be a franchise business you wish to avoid.
Not having enough working capital
Many franchisees underestimate the amount of working capital they will need to run their franchise. You need to make sure that you have enough to cover every cost associated with opening and running the franchise as well as being able to support your family.
Not understanding the market
Though the franchisor will help you with finding your site and will give information about the local market, is it essential that you undertake your own research so you understand the area inside and out.
By doing this it will help you to identify whether there is potential for the product or service you will be selling. Do you have competition in the area? If so, is it one major player or several smaller businesses? Is there room for your business too? What are the USPs of their business? Do you offer anything that they don’t? If there are no competitors look at whether this is because you are offering a unique service or whether it is because the market is not right for your franchise.
By undertaking your own research it will also allow you to compile your own marketing plan for targeting customers. Find out also what the franchisor will be providing in terms of marketing and promotion to help get you known in the area, and whether it is sufficient. Be wary that companies will try to sell you advertising and whilst it may be tempting as you want to get your business known, buy carefully as it can become very expensive. Always ask your franchisor for advice as they may have agreements in place with certain suppliers.
Not buying the right franchise for you
Some people can fall in love with a franchise concept and immediately think it is the right franchise for them. Their heart starts to rule their head and they start to look only for positives in the franchise, cutting out a lot of the research needed. You need to be make sure that whilst you love the concept of the franchise, it is the right franchise for you and one that you would enjoy working in. Do you due diligence, meet with the franchisor and franchisees and get a feel for the business and what it entails...overall let your head rule.
These are only some of the mistakes that can be made. To make sure that you avoid making them or any others, do as much research into the franchise as possible. By knowing everything you possible can about the business, you are less likely to fail. And remember, if something seems to good to be true, it probably isn’t!