Buying a franchise is more complicated – and riskier – than just picking a famous brand and writing a cheque. This is a decision that is going to require a significant investment of time and money.
To be successful, you need to find something you can be passionate about – that you’re going to enjoy doing. Getting into a franchise is a lifestyle decision. But how do you start narrowing down the overwhelming number of franchise opportunities to find the perfect one for you?
Here are ten essential steps.
1. Start with yourself
The process begins with some self-examination. You need to ask yourself what your business strengths are and what types of business activities you really enjoy.
At the same time, identify your weaknesses and what you don’t like to do. Ask yourself some key questions. What kind of lifestyle do you want this business to support? How much money do you need to earn? What hours do you prefer to work.
If you have trouble dragging yourself out of bed in the morning, a coffee franchise where you need to report at 5 am may not be the best choice. Some franchise concepts may require you to be very sales oriented and if you’re not a sales oriented person, you may find it’s not a good fit. Make sure that you understand exactly what it’s like to be that franchisee.
2. Do your homework
Narrow the choices down to a few industries you are most interested in, then analyse your geographic area to see if there is a market for that type of business.
You can work with a franchise consultant, or contact all the franchise companies in those fields and ask them for information. Any reputable company will be happy to send you information at no cost.
At the same time, do your own detective work. Search online to find all of the information you can about the company you’re considering.
Also, check with the consumer or franchise regulators in your state to see if there are any serious problems with the company you’re considering. If the company or its principles have been involved in lawsuits or bankruptcies, try to determine the nature of the lawsuits.
3. Check the money, honey
Franchise investment can range from a few thousand to tens of thousands of rands based on a variety of factors, so crunching the numbers is also critical. Look at all investment costs, including upfront outlays, monthly franchise fees, advertising contribution and royalties.
Work with your accountant and your best estimates of the future of your business and your industry.
Then, look at the capital you have available for investing. Be sure that the projections you make include enough money to support you and your family for the period of time necessary until the business becomes profitable.
4. Understand your rights
Franchisors are required to make the company’s disclosure documents available to prospective franchisees. It’s important to carefully examine this document as it includes details about the franchisor’s finances; fees, royalties and other costs; patents, trademarks and copyrights; obligations of the franchisor, and a variety of other pieces of information about the company.
Surprisingly, a number of prospective franchisees don’t take the time to read every document from the franchisor.
5. Get outside counsel
Find an attorney, accountant, or consultant who specialises in franchise matters. These counsellors have seen the different kinds of issues that can arise and don’t have the emotional investment that you have in the deal.
They may be able to spot areas you’ve overlooked or that expose you to more risk than is wise. Speak to brokers or others in the marketplace.
But make sure that you get a lot of different opinions from people other than yourself who can play devil’s advocate for you in this process, so that you’re not making a purely emotional decision.
6. Talk to franchisees
The franchisor must also provide names and contact information for other franchisees – and you must make those calls.
Conversations with existing franchisees can give you invaluable information about the actual experience of working with the company and the true impact of the brand’s advertising efforts.
Some of the questions prospective franchisees should ask include: Do the franchisors deliver on their promises? Are they providing you with adequate support? Did your investment fall in within the range that is listed in the disclosure document? Are you happy with your current returns?
How much money are you making? Do you feel good about the decision that you made? Ask specific questions: What am I doing on a day-to-day basis? Tell me what my day is going to be like. What skills do I need to have to be successful in business?
These may seem intrusive, but most will be happy to share the information.
7. Meet the management team
It’s important to become acquainted with the franchisor’s management team in person, preferably at their headquarters. This will allow you to see the entire operation and get to know the people who will be providing your support services.
The look of the office and the attitudes of the people working there can speak volumes about the company itself. You want to have lengthy conversations with them. You’re marrying these people. You have to look them in the eye and like what you see.
8. Make careful projections
Develop a profit-and-loss analysis that includes how much you would have to sell to make the royalties and other costs worthwhile.
Revenue flows from different areas, so it’s important to understand where the money will come from – and what needs to be paid.
9. Have a plan
It’s important to have a franchise business plan. For this kind of plan, the main sections include an Introduction, with a complete description of the business and the products or services involved; Management, which describes the key management roles in the firm; Marketing, which outlines how your franchise will promote itself to attract business; Financial Projections, including income and cash flow statements, and balance sheets that project anticipated financial performance; and Financing Needs, which outlines potential capital needs of the business in the period before it becomes profitable or as it begins to grow.
10. Don’t fall in love
Finally, many people buy a franchise based on emotion, without doing the proper research into the prospective market or the franchise’s history or requirements.
Falling in love with a franchise idea before you’ve done the due diligence outlined here is a recipe for disaster.
You’re quitting your job, getting rid of your benefits, taking your entire life savings, and doing something you’ve never done before. Before you do that, you owe it to yourself to do a little research. l
Take the test
I am my franchise
When it comes to franchises, one size doesn’t fit all. Your personality and natural inclinations – how you behave and make decisions – must mesh with the business you choose, otherwise you’ll be going down the wrong road. Do you see yourself as calm and consistent or creative and challenging?
Are you interested in working part-time from home while you pad around in your bathrobe and bedroom slippers? Or do crave to be the next franchise king in bespoke suits, opening that Far Eastern operation in Bali?
Our simple quiz won’t give you any definitive answers about your inner self, but it just might help you decide what kind of franchise is right for you – and which one isn’t. Consider it a start.
1. Which best describes your work style?
- Part-time or flexible full-time hours.
- Early to bed, early to rise, with reasonable hours in between.
- Love my work, so why not do it all the time?
2. Do you prefer:
- Work that keeps you close to home – or even in the home?
- Work that allows you to meet new people all the time.
- Work that keeps you focused on the details.
3. Your dream job is:
- Something you can do out of your spare bedroom.
- Consulting with business owners to help them succeed.
- Owning a restaurant or nightclub.
4. How would your friends and family describe you?
- The dependable one. You’re always steady, calm, and consistent.
- The creative one. You’re always dreaming about the next big idea.
- The wild one. No risk or challenge is too big.
5. When you think about where you want to be five years from now, it’s:
- Working in a business that allows me the time I need for other activities.
- Working in a growing business that provides a comfortable living.
- World domination – at least in my geographic corner of this franchise system.
For every 1 answer, give yourself 1 point.
For every 2 answer, give yourself 2 points.
For every 3 answer, give yourself 3 points.
If you scored:
5-8: You might be best-suited for low-stress, low investment franchises that either supplement your other work or allow you to work part-time. Investigate home-based franchises or those that require minimal investment in the location.
9-12: You understand the hours it takes to run a business, but you don’t want it to overtake your life. Look for well-established franchises with good track records. You might want to avoid those that require odd or long hours, such as food service or entertainment franchises.
13-15: You’re a wild child, ready for anything. If it’s risky or overwhelming, bring it on. You may be well-suited to franchises that allow you to express your dynamic personality and love of people. Just be sure that you’re not biting off more than you can chew – never skip doing the all-important homework before you jump in.