While there are many examples of successful franchises, buying into one is no guarantee of success. Each year there are failures, both on the part of franchisers and franchisees.
Before buying a franchise, 10 important questions need to be carefully and thoughtfully answered:
- Are you willing and able to take on the responsibilities of managing your own business?
One of the myths that have been perpetuated is that franchise ownership is easy. This is just simply not true! While the franchisor will give the start-up training and offer ongoing support, you, the franchisee, must be prepared to manage the business. While some franchises may lend themselves to absentee ownership, most are best run by hands-on management. You must be willing to work harder than you have perhaps ever worked before: Forty-hour work weeks are also a myth, particularly in the start-up phase of the business.
- Will you enjoy the franchise?
Sometimes people buy a franchise they think will make them a lot of money, only to find later they do not enjoy the business. The adage, “know thyself” certainly applies here. You should buy a franchise that centers in an area that you will enjoy for the next 10-15 years.
- Are you willing to completely follow the franchisor’s system?
The very key to franchising success is the consistency of product and service customers find from one franchisee to another. When you display the sign and logo of a franchise, you are indicating to customers that you follow a particular system. People who are extremely entrepreneurial in the sense that they do not like to conform to predetermined formulas should be very careful about buying a franchise.
- Do you have a history of success in dealing and interacting with people?
Many franchised businesses are based on people relations. Your ability to interact with your franchisor, other franchisees, your employees and your customers cannot be emphasized enough. A negative, critical franchise owner can be a detriment to the entire franchise system. You must have a track record of developing good relationships with employers, supervisors and fellow employees.
- Can you afford the franchise?
One of the major causes of business failure is undercapitalization. While the franchisor will be able to give you a good idea of the start-up costs, sometimes these will vary due to leasehold improvements needs and other valuables. You will need enough money to not only open your franchise, but to run it until such a time as it is profitable. For some franchises that may take a year. Remember, it is better to start out with more money than you think you will need rather than less.
- Have you carefully studied the legal documents?
Franchisors are required to prepare a document called the Franchise Offering Circular. This document will give you pertinent information about the franchise, and will also contain the franchise agreement that you will sign. This agreement will govern your relationship with the franchisor for the term of the contract. The FOC is a vital document, and should be studied and discussed very carefully with the help of legal counsel.
- Does the franchise you are considering have a track record of success?
You should get to know the principal directors of the company, their business background, and how profitable their franchise has been (the FOC will contain this information). Have an accountant review the financial analysis to the franchise. Is it a solid company? Also, examine how long the franchise has been in business. A new start-up franchise may offer you the opportunity to get in on the ground floor, but it might also mean that the franchisor has not had sufficient experience to fully develop the system.
- Are the franchisees generally happy and successful?
The FOC will contain a listing of all of the franchise owners. It would be worth your time to contact a number of them to discuss their experiences with the franchise. Has the franchisor followed through on commitments? Did the franchisees receive adequate training? Would they buy the franchise again? Is the business profitable? What advice would they give you?
- Do you like the franchisor’s staff-those people with whom you will be working?
One of the most important elements of a franchise is the ongoing support and contact you will have with the franchisor. For this reason, you should feel comfortable with the people you will interact with for a number of years.
- Do you have family support?
Managing a franchise is a full time job. It requires great sacrifices of personal and family time. For this reason, your family should understand that you will have tremendous demands on your time.