1. Research the market thoroughly. Read the franchise trade press, check out the numerous internet sites and sign up to industry newsletters.
2. Do you know anyone who is currently running a franchise business? If so, ask them what the pros and cons are, and whether you could spend time with them in the business to find out if franchising is right for you.
3. Ask the franchisor for a list of current franchisees to speak to. If they are reluctant to let you contact them freely be suspicious if there are no valid reasons.
4. Do the financials stack up? Always check the validity of the business model and the projections with your own research into your local market â€“ variables such as location, disposable income, product and buying trends can all affect your projections. Your accountant, bank and existing franchisees can help to verify your findings and assumptions. If the projected revenues look too good to be true they probably are! Also bear in mind your initial start up costs will need to be deducted from your revenues. Don’t leave yourself short, you may need to secure enough working capital for 6-12 months until your business becomes more established.
5. Ensure that you have taken into account all fees that may be charged by the franchisor, and what these fees include. For example, does the franchise fee only include the Intellectual Property fee or does it include other fees such as training, start up stock and equipment, premises fit out (if applicable) etc. It is also important to check whether there are any other ongoing fees such as training, the purchase or upgrade of equipment, commitment to a minimum advertising expenditure on a monthly/annual basis etc. Finally, find out if there are any other costs required to start the franchise – ie legal fees, rent deposits, telecoms, vehicle costs etc – your franchisor should be able to give you a breakdown of what the fees include and the types of costs you can expect.
6. Consider whether you have the skills and the right attitude to take on a franchise? Franchising is hard work and needs energy, commitment and stamina. Many people believe that you pay the franchising fee, sit back and the money will flood in. If you have previous business or commercial experience which you can transfer to the franchise business so much the better, but usually it is not necessary to have specific experience of the franchise sector. The more effort you put into a franchise the more successful it is likely to be. The franchisor may be there to support you with the daily running of your business, i.e. technical, administrative and marketing back-up, but you should not rely on them building the business for you.
7. Do you have contingency funds available? When running a franchise you may experience good times and bad times due to factors such as seasonal fluctuations, slow payers etc. Like most businesses it is wise to have either cash reserves or a line of credit to see you through any challenging times!
8. Have you considered alternatives to franchising? Franchising is a great way to start a business but it does not suit everyone. Are you disciplined enough to be able to follow someone else’s business method or are you too much of a ‘free spirit’ to be bound by a plan which is not your own. The amount of control varies from franchise to franchise. Some are very hands-on while others leave the franchisee to ask for help when they need it. Try to find out what sort of culture your potential franchisor has and see if there is a good fit.
9. Do you have an exit strategy? When setting out on the franchise route ask yourself what your long-term goals are. Do you hope to eventually sell your business in a trade sale or pass it on to a member of the family? Check out which types of franchise have the best resale value.
10. Have you set realistic goals for the franchise? Run properly a franchise can be a very profitable venture. It would be nice, but franchising is unlikely to make you a millionaire overnight so set yourself steady targets which can be achieved.
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