Top 10 Mistakes People Make When Buying a Franchise
Look Before You Leap
Once you have decided to go into business for yourself, one option is to rather than start a company from scratch or purchase an ongoing operation from its current owner. There are many benefits to , among them high brand recognition, a strong corporation backing you up, and the fact that financing is generally more easily obtained from traditional funding sources, such as commercial banks. But a franchise is not for everyone, and there are plenty of pitfalls to avoid before sinking your life’s savings into an opportunity that may or may not do well by you. Although there are probably dozens – if not hundreds – of things that could go wrong, here are ten top mistakes worth considering, and then avoiding at all cost.
1. Lack of suitability
Not everyone is cut out to be a franchise owner. You automatically become part of a larger organization, which certainly has tremendous benefits attached to it. But you will also be required to follow certain guidelines – sometimes rather strict ones – and this does not always sit well with people who are somewhat free-spirited or have trouble with authority figures. Make sure you read the franchise agreement with care, as it should describe in great detail exactly what rules you must follow as a .
2. Ignorance of the product or the market
Just because you know nothing about running a restaurant doesn’t mean you should avoid buying a fast-food franchise. But advance knowledge of an industry, or the understanding as to why one product sells well while a similar one fares less well, is an important part of being a successful business owner.
3. Failing to Engage Other Franchisees
Most potential avoid becoming the first franchise in a system, and that is probably a good idea. Conversely, the already in business have a wealth of information to offer. In many cases, parent companies encourage or even demand that you spend time with other operators to learn the tricks of the trade. It’s even better to take this step before you decide to become part of the family.
4. Lacking Adequate Capital
All franchise operations are required to divulge the amount of money it will take to open one of their locations. This will include the upfront franchise fee, start-up expenses, and the ongoing royalty fee, if any. But these are far from your only expenses. There is payroll, taxes, inventory, supplies, rent, and much more. An undercapitalized business can soon become an out-of-business business. Make sure you have all the money you need at the start.
5. Not Reading the Franchise Agreement
As stated in #1 above, a franchise agreement lays out all the aspects of buying and running a franchise. This is the most important document you will sign; understanding every single element it contains is vital to your financial (and even emotional) health. The other half of this element is reflected in Mistake #6, which is …
6. Absence of Adequate Legal Counsel
There are plenty of lawyers out there with significant experience in representing and their unique business interests. A trained attorney help you understand the vagaries of the franchise agreement, as well as advocate for you in other aspects of the transaction, such as reviewing the legal papers that are part of any third party financing you may obtain.
7. Relying on Verbal Promises
No matter how well meaning a sales rep may be, they are trained to put a positive spin on every aspect of a transaction. Representatives of a franchisor are no different. This does not mean they mislead intentionally, but the only worthwhile promises made by the seller of a franchise are those that appear in writing – preferably as part of the franchise agreement.
8. Underestimating the Competition
It is always a good idea to gain as much knowledge as possible about an industry before becoming immersed in it. A critical element includes examining your potential competitors. What are they doing successfully that your franchise may not be able to do? Conversely, where are their weaknesses and how can you exploit them to your best advantage?
9. Setting Aside Too Little Time
Running your own business sucks up an amazing amount of time and effort. Even if you have a slew of employees at your fingertips, there are plenty of tasks you will trust to no one but yourself. Failing to recognize this ahead of time can cause difficulties with friends and family, as well as putting an undue burden on the rest of your staff.
10. Leaving the Marketing to Someone Else
So your franchise agreement states that the home office will look after all your marketing needs, which will include TV ads, radio spots, newspaper coupons – the whole magilla. Nonetheless, your particular location will only succeed if you take a personal interest in this top-of-the-heap aspect of running your own business. Remember, even though it is a franchise, it’s your franchise. Do everything you can to get people walking through your door and not someone else’s door.