Franchising - How to Avoid 10 Common Pitfalls
The purpose of this article is to address 10 most common pitfalls people face when looking to start a franchised business.
1. You are being “sold” on why you should have “this business”:
If a sales person from the company is selling you on the idea of why you should buy this franchise, understand it is a biased opinion. Use the information the sales person gives you, but do your OWN research on why YOU should have THIS business
2. Not focusing on the business model and how it matches YOUR lifestyle:
A business name or type may be catchy, but is it the right business for you? Focusing on the business model will match you closer to your best natural choice. A business model will focus on your goals and needs and help you fit it in to your desired lifestyle: number of employees to manage, income you need and want, the number of days you are “open” per week, the number of hours you are “open” we day, the location of your business, etc.
3. Your friends or family tell you it is the “best business to be in”:
A family member or friend might have the best intention, but YOU need to choose. Take their advise and use that to help with your research. They may give you some great information to use in your research, but the research needs to be done by you.
4. No time for “Validation”:
The validation of a franchise is the most critical stage in your research. Validation is merely finding out if the company is doing what they say they can do. You have the ability to contact existing franchisees and interview them. Their success, their concerns, their expectations, their earnings, and their relationship with the franchisor can and should be discussed in a professional and confidential manner. You also have the ability to contact the previous franchisees and interview them. Find out why they are no longer a franchisee. Did they sell for a profit or did they close due to failure?
5. The FDD is too complicated and just full of legal jargon:
The FDD is not full of legal jargon but should be reviewed by your attorney if you are close to signing the documents. The FDD will have the list of all franchisees, existing and previous owners with addresses and phone numbers. It will also contain any legal disputes. The FDD will tell you everything that is expected of the franchisee, including costs, royalties, length of contract, and expectations of the business operations.
6. Working without a competent franchise consultant:
A franchise consultant works with hundreds of companies versus a sales person the works with that specific company. This consultant should be unbiased and focus on your goals. A franchise consultant should only refer you to companies that you are qualified for; both financially and professionally. A franchise consultant should never pass your name or confidential information to a specific company without your agreement. A franchise consultant has your best interest in mind. They are the “matchmaker” and NOT the salesperson.
7. Focusing on the “Top Franchise” lists since they are the “best”:
The “best franchise” lists are offered in many publications. They are good to look at for ideas. Find out what makes these companies get on the “top” list. It is usually based on total sales or the most amount of franchised locations. Remember…..more is not necessarily better. The same validation still must take place, even if a company is listed on one of these lists. Some franchise companies choose to stay smaller and keep their existing franchisees very happy and financially healthy.
8. Not having enough working capital:
There is a reason the FDD will have the financial requirements listed. They need you to be successful in order for them to be successful. Do not go beyond your financial limit. A franchisor wants you to have enough capital to focus on growing your business. There is a start up period any company takes before it starts earning money. When doing your validation, find out what that specific company’s average start up (break even) time is prior to being profitable.
9. Not giving yourself enough time for the research and validation:
The beauty of a franchise is the fact that you have predictable results. If you do the proper research, the day you open the doors of your new business, you will know what to expect. Predictable results and expectations being met or exceeded are invaluable. You will have this with the correct research and validation time.
10. Not having an exit strategy:
The most successful entrepreneurs have an exit strategy. You may choose to be in this business for the next 20 years, but know your options regarding selling, transferring ownership to a family member, or other exit options.
As you probably realize, buying a franchise is a serious process. There is so much information available out there…..But, in the end, it can provide you with an opportunity to be in control of your future.
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