Investing in a franchise isn’t just about your favourite fast food store or grocery chain. Just because you like them, it doesn’t mean they’re the kind of place you could run and get a return on your investment on.
You’re putting a lot of money into buying this franchise, so you have to ensure it’s the first and best decision you’re going to make for your business.
According to Nando’s Business Development Director Trudi Van Niekerk, here’s what to consider before putting your money down for your biggest investment yet:
“Spend a lot of time speaking to other franchisees in the brand,” says Van Niekerk. This affords you the opportunity to get honest opinions about the kind of manner in which the franchisor deals with his franchisees. Ask all the necessary questions, because, after all, you’re about to join the company.
“Speaking to existing franchisees will form a very important part of your research,” says franchising legal expert Martin Mendelsohn.
“They have, after all, been living with the business and with the franchisor for some time already so their responses will help in your decision making.” He highlights that you must choose who to interview so the franchisor doesn’t feed to you only his best franchisees.
Look at the business feasibility, says Van Niekerk. “Understand the business model: Does it make sense, are franchises making money, and are they happy to make a decision to invest in that brand again?”
She also recommends you pay careful attention to the dummy income statement that your franchisor provides you with, so you have an idea of what your finances may look like during the first few months.
Jeff Eglin, CEO of FranChoice Inc. suggests you widen your scope when researching: “Two answers are not sufficient to establish a range you can have confidence in. 10 or even more would be much better,” he says, adding that the reality is, the first year will probably be a loss, but by the third year the business should be making good money.
“Ask a lot of existing franchisees about their experience at these levels, and make sure you know what your probable income will be by the time you complete that critical third year,” he says.
“Understand the business model: Does it make sense, are franchises making money, and are they happy to make a decision to invest in that brand again?”
Understand the kind of support that gets provided. It’s best to opt for a franchise that will not only thrive and make you money, but has the means to reinvest in training and supporting its franchisees.
Ask your franchisor the following questions as advised by the BFA (British Franchise Association):
- Do you train me? Who pays for my training? Where do I go for training?
- What advertising and promotional expenditure do you incur?
- What help will I receive in local advertising and promotion?
- What systems do you have for keeping franchisees in touch with you and each other? Do you publish a newsletter? Do you hold seminars?
- What continuing services do you provide after the franchise business has commenced?
“Make sure you review their financials and ask for help from a competent advisor if you’re not comfortable doing this yourself, says Eglin.
Related: 3 Secrets To Franchising Success
Money plays a large role in your decision to invest in a certain franchise, but you should also consider the brand you’re buying into and the network of franchisees you’re joining to get the best out of your hard earned investment in the company.