Key Questions Before You Buy Into a Franchise
Key Questions Before You Buy Into a Franchise
Before buying a franchise business, a great many issues must be considered. If you pick the wrong franchise in haste, you could be regretting the decision for a long time to come.
To help you avoid some of the major pitfalls, we have identified ten factors you should consider carefully in your decision about whether to become a franchise owner. The list has been compiled by some very experienced franchisees, and all the information is based on direct experience, near misses, and stories we have heard from the trenches.' We hope that by reading this article, at least a few people will be prevented from making a very costly error in judgment.
How would your franchise business be affected by economic ups and downs?
All economies are cyclical and, as recent history has shown, there are times when global, national and local factors result in economic slowdowns which can last many years. What impact will a change in the economy have on your prospective business? Typically during difficult economic periods, luxury products and services as well as nonessential goods and services will suffer more than those seen as cost-saving or essential items and services.
How dependent is the franchise on a specific type of area or socioeconomic mix?
Most franchises start from a single business in a single area. The success of that initial operation and perhaps a subsequent pilot, are often the basis for the entire franchise operation. However, the area the business started in and the area you will operate the franchise in are likely to be different (different ratios of houses to businesses, blue-collar to white-collar workers, high-income to low-income residents, different levels of competition, etc). Evaluate the impact of these differences on the franchise's earning potential.
Will the franchise operation as a whole survive if there is a change of ownership or change of management?
Some franchise operations only succeed due to the influence of the founder or the current owners or management team. What would be the impact of a change in the owner/manager of the business? Do you think the product and operating model would work equally well regardless of who owned/operated the franchise group? A change of management may well have the effect of turning a well-run business into a poorly-run nightmare.
Does the franchisor have the right management structure in place to be proactive in developing and refining the business?
New ideas and approaches to business are essential and necessary functions of the franchisors for the long-term survival of the franchise. Ask about their experiences and how they intend to keep competitive over the long term? What ideas do they have for product/service growth? What flexibility will you have as a franchisee to change the product mix, marketing or pricing strategies?
Are the profit margins high enough for you to pay the franchise fees as well as yourself?
When reviewing financial forecasts for the business, be sure to establish the net profit after franchise fees are paid. Often, the numbers quotedlook great, but do not include the monthly fees you will be charged. Depending on the franchise, these may include both fixed amounts and percentage fees based on your business volume.
Do the products or services being offered have some element of uniqueness about them which is exclusive to the franchisor and, ideally, patented?
If your franchisor is not offering a unique product or service, then it is highly likely you will face direct competition from other franchises, independent retailers and chain stores. Open a magazine about franchising and you will see that many industries have franchise businesses offering very similar products or services. Factor this in when looking at the income levels quoted by your franchisor. If a competitor opens next week, will your income potential be halved?
Many small businesses have closed due to the power of supermarkets. Could this happen to your franchise?
Supermarkets and big chain stores will reach into markets and niches that have a high degree of profitability and/or will build their customer numbers (eg, photo processing, dry cleaning, newspapers, books, DVDs etc). If there is enough profit, supermarkets will look at any business opportunity and will often have the resources to enter the market. Supermarkets are a great convenience for most of us, but you do not want to be in competition against them.
Will the franchisor permit you to speak to any of the franchisees he has up and running?
A good franchisor will give you a list of all franchises currently operating and let you choose the people you wish to speak to. It's also a good idea to talk with franchisees who closed their operation, and find out why. Talking with franchisees who sold their business could give you a realistic estimate of the equity potential. Due to the pressures of running a business, not all existing franchisees will be willing to talk with every potential franchisee. Bear this in mind, but do try and speak to as many as possible, ideally five or six.
Piloted and fully audited franchise operations give the best chance of success.
You can further mitigate the risks of buying and operating a franchise by looking at franchises accredited by the International Franchise Association. (For additional information and advice, visit the IFA website atfranchise.org.)However, this does not guarantee success, and less-proven franchises may work very well. Also, the more established a franchise is, the higher premium you will have to pay for it.
A good franchisor will encourage you to visit their headquarters.
They will encourage you to work with them for a day, and they will give you all the information you ask for and not pester you for a decision.Ideally, your franchisor will go a step further. If they truly want you to succeed, they will vet your suitability as a franchisee (instead of just verifying that you have the money). We suggest you do the same thing by having a credit agency check out the franchisor, directors, and key financial staff.
Please note that this is not an exhaustive list of the factors that make a good franchise, but should give you some key areas to consider. Take your time, take care, and heed the advice of experts.
The Franchise Expert is a team of experienced franchisees based in the UK. For more franchise advice, visit atTheFranchiseExpert.com.
Printed fromArticlesBase.com -10 Key Factors In Selecting A Franchise. All You Have To Know About Countrywide Property Foreclosures Have A Memorable Holiday With Cheap Hotels In Valencia Spain A Creepy Fun Halloween Earning High Marks - ACFN ATM Franchise - Amongst the Best Companies in America Recommendations for Starting a Compost Pile This Autumn How To Decide Which Escort, London You Want To Hire Breast Enlargement Product Comparison Traveling Light Grape Expectations - French Cheese and Grapes Are Natural Compliments! Unique Gift To Record The Niceness On Christmas Celebrate Spring With Champagne and Cheese Pairings Rediscovering Wales For Your Holiday Exciting travel packages to Jaipur