Want to buy a franchise? Owning one seems like a dream come true! Someone else has already come up with the idea, designed the operations, written a playbook, and they have a leadership team in place. What can go wrong?
Keep reading for some helpful tips about how to avoid the most common franchise mistakes new franchisees make.
Not Doing Enough Research
The possibilities of what a franchise can be creates excitement, and sometimes this excitement causes us to disregard the upfront work and research that we know is necessary to help us make the best decisions we can.
Research is valuable because it helps you build knowledge, understand issues, increase your awareness, disprove lies, gauge opportunities, and can help you succeed in business.
To avoid failure as a new franchisee, embark on some of these lesser-known but valuable research practices:
- Go to your local chamber of commerce to find out about your local marketplace and economy - can the area support your plan?
- Spend time with other franchisees in the specific chain you’re looking to belong to; ask them what would they do differently. Pay attention to their grievances. They will be transparent and tell you their truth.
- Find the overall success and failure rate of franchisees and how many are still in business through the entirety of their contract. This can inform you of your chances of success.
- Consider Failure - what happens if you fail? What are the consequences, and there are many, for failure? Financial, emotional, reputational, etc. This is not suggested to scare you away from investing. It’s to make sure you not only understand the wonders of success but the possibility and experience of failure. Ask yourself, “what’s the worst that can happen?”
Having a Lack of Funds
Buying a franchise requires funding. Not just the funds you need to make the purchase, but the capital you’ll need to get you through opening your business, the ramp-up time prior to seeing a profit, and the unforeseen ups and downs of the economy. Remember 2008? I do.
If you don’t start with enough funds to carry you through the sometimes unexpected costs and expenses of owning a franchise and the rough times that can and will, occur, you might find yourself in a mess, financially and emotionally. Think of funding your business as the base on which everything else stands.
Here are some tips to help consider how and where you can get enough financing to have a strong business structure:
- Your Franchisor - Many franchisors will help with loans or even partner with your lender to secure capital for starting your business. There are several other ways your franchisor can help you get a loan.
- SBA Loans - The Small Business Administration will loan money for a new business just like commercial banks and credit unions do. You can apply for an SBA loan through your business lender
- Commercial Lender - Talk with your bank about what services they can provide to help you secure a loan.
- Family and Friends - While some may not want to go this route for obvious reasons, there are those whose family and friends, with extra funds, would be happy to invest. If you go this way be sure to have your business plan in place to show them why you are a good investment.
Not Leaning on the Franchisor
One of the most common franchise mistakes made by new franchisees is not leaning on your franchisor for support. The franchisor and franchisee are in a business relationship with a contract specifying the terms of engagement, including support from the franchisor.
Franchisees can, at times, want their independence; to feel as if they’re on their own and can “make it” without help. If this is your tendency in life then think more before entering into a franchising relationship. In truth, franchisors and franchisees share a common goal - to make a success of the operation so they both win financially. It is in both of their interests to work together.
For you, the franchisee, there are ways you can lean on your franchisor to support you:
- Lead the marketing effort - it is the franchisor’s role to have a consistent message for all their franchises. This consistent message allows customers to know what to expect and helps guide you in the operating of your business.
- Provide the training needed - A key to consistent products and services across a franchise operation is the same training for all involved, from owners to employees. Make sure your prospective franchisor has a training program.
- Suggest the best technology for running your operation - From your POS system to your bookkeeping, your franchisor has the resources to do the due diligence to determine the best way to run your operation at the lowest cost with the most efficiency. Check to see if the franchisor you’re considering has standard technology for all franchisees.
Settling for a Bad Location
If you’re in a hurry to make a dream come true you could skip over one of the most important aspects of owning a successful franchise - a good location. It takes time, money if you hire expert help, and energy to select the right location for your business. If you are impatient and rush through this important step you will set yourself up for failure. So, what can you do to ensure the best possible location?
- Get up to speed on the area where you want to be. If there’s a site you like, learn all about that site - I sat on my property with a clicker and counted the cars that went by. I did this for two entire days, all day, paying special attention to what I thought would be busy hours.
- Will the ingress and egress be easy for customers?
- From where will you get your business? Look at what is nearby; a business park, hospital, schools, other retail, and restaurants.
- Work with your franchisor because they usually have designated help for this, and most importantly, they will likely have a say in where you can locate. After all, it’s in their best interest for you to succeed.
Not Hiring a Franchise Attorney
There are two reasons given for not hiring a franchise attorney: 1) You act as your own attorney, and 2) You hire an attorney that’s not an expert in the discipline of franchising.
Some people will think they can represent themselves or will sign on the dotted line without an attorney. It happens. Don’t do this.
Franchise attorneys, unlike other attorneys, have taken their time to learn the specifics and nuance of franchise law.
NOTE: Don’t make the mistake of hiring a corporate attorney. They don’t have franchise law education, and they don’t work in the franchise industry on a day-to-day business. You wouldn’t let an orthopedist work on your heart, would you?
A franchise attorney can bring many important aspects to your franchise ownership strategy:
- They’re educated in the field of franchise law
- They spend their days reading franchise contracts and engaging in franchise law conversations
- You are paying them to protect you and your interests
- You can avoid costly mistakes
- They are available when you need them, and you may need them fairly often
- They’re your attorney and will fight for you if ever needed
It’s All About Education
Ultimately, your success at franchising, as in life, is about the education you seek and in which you participate. Your education prior to being a franchisee means doing your due diligence and researching ALL that is necessary to make the best-educated decision possible. Educate yourself so you can:
- Determine whether being a franchise owner is best for you, your financial situation, and your personality.
- Decide what franchise you want to buy.
- Resolve how you will fund your business for the long term.
- Build your “network of help” (attorneys, CPAs, vendors, etc.) along the way.
- Strategize how you will grow and achieve your ambition as a franchise owner.
Contact us to learn more about franchising!
