What to look out for when considering a Franchise
Buying a franchise has series of benefits and can actually be a great way for aspiring entrepreneurs to attain success without the uncertainties and risks associated with starting a business from the scratch. However, you should not just buy a franchise on a whim or based on the product produced by the franchise.
The following are what you should look out for when considering a Franchise:
- The capital involved and other hidden costs
This is an important question to consider before committing yourself. The initial purchase price of franchises differs, so make sure you are clear on the exact figure. Equally important is the need to know what will be covered by the initial fee. In some cases, the fee only covers the right to trade under the brand of the company while other expenses are added costs. Whereas in some instances, this fee may also cover capital expenses like vehicle purchase, real estate, etc. Apart from the fact that the franchise will receive a percentage of your revenue, there may be additional costs for other services like marketing and training. Ensure that you understand all the fees that you will be required to pay before you decide on a franchise.
- Check for Proven Systems
The whole idea of buying a franchise is to operate under a proven business model. So if you are considering a franchise, make sure that they do have a proven system. This will likely include marketing, payroll and even client services. Find out all there is to know about the franchise, including its reputation and business record as well as finding out if there are any past or present legal judgments against them. Not to be overlooked is the need to consult an existing franchisee for honest information about the franchise. If the company prevents you from meeting with existing franchisee, then look elsewhere.
- Evaluate Earnings Potential
Evaluating the profitability of a franchise can be somewhat tricky, since you can’t rely solely on profits from other franchise locations as they may be affected by location and a host of several other factors. Get hold of a complete list of the financials from other franchises and find out how the successful ones became profitable and at the same time investigate if any franchise has failed recently.
- Analyze Market demand
Check if there is a solid consumer demand for the products and services offered by the franchise and if there is every indication that the demand will continue. You also need to assess competitors, and compare the quality of their products to that of the franchise you are interested in. Study the methods used by the franchisor to research existing and new markets.
- Training is Critical
A good franchisor will be genuinely interested in your continued success, so they will offer continuous training that is pivotal to the development of your business. The franchise should be ready to invest in your success by offering well-organized, structured and proven training programs.
- They must have succeeded
Before taking on a franchising opportunity, find out if they have succeeded. Check if their franchisees are happy and still in business after the first two years.
- What happens when you want to leave?
Carefully review the franchise disclosure, as it can be really difficult to leave a franchise. This is because some franchise agreements may include a non-compete provision prohibiting the franchisee from operating similar business for a definite period of time. The franchisee may also be prohibited from contacting clients of the franchise. So find out if there is any type of prohibition or restriction in the franchise agreement.
- Make sure you are comfortable with the company’s operations
Franchises have different rules when it comes to how to operate a business. You should determine if you’re comfortable with the way the business is being handled, including what you cannot modify or change.
A franchise can be profitable, but before signing an agreement, make sure you consider the above points. You will be glad you did!!!