As you begin your franchising venture, your success depends on you making as few mistakes as possible. Becoming a franchisee may seem like a safe opportunity to invest in, but that’s not always the case. It’s possible to choose a thriving business, but make the wrong decisions that lead you into failure. In this piece, we will look at 7 common mistakes made by potential franchisees.
1) Not Doing Enough Research on the Market
Potential franchisees are often lured into thinking they are buying into a name or product that will ultimately be successful and choose a location without even considering if it’s desirable and/or promising. Do you know how the market will react in that particular area? Is there tough enough competition that you’ll have a difficult time breaking through?
Do they dominate the landscape? If so, you may be required to invest more capital on advertising and find yourself in the midst of a struggle for the competitive edge. Your franchisor may have market research available, but don’t rely on that solely. Do your own research and consider all the possible weaknesses of the area.
2) Not Looking at Why Other Franchisee Have Failed
In the research phase, you need to take the time to contact the owners of failed franchisees and find out why those outlets closed or why they sold out. This is especially important if you know of a failed business in your particular area. It may be economy related, but if you find common stories, they may be issues you can correct and do better. At the same time, remember there are two versions of the same story, so take the time to contact the franchisor. Take a look at the big picture before investing.
3) Not Having Enough Starting Money
Another big mistake potential franchisees make is assuming a big name will lead to a financial windfall. You pay all the fees and are ready to get started, thinking that in a few months you should reach even. But that’s not the case at all. It may take up to a year or longer to hit even on your investment. It might not even happen at all, especially if you shorted yourself to begin with. There are a lot of pre-opening costs you may not be considering as well as operating cash and your living budget for your family. As with anything involving money, it’s often more expensive than you think.
4) Not Understanding the Franchisee Agreement
One of the first moves you need to make is hiring an attorney to help you understand and interpret any of the legal documents and paperwork that comes with becoming a franchisee. There will be other contracts as well, including real estate agreements and the franchise agreement. If you have any questions or concerns, contact the franchisor and get your responses in writing. If you don’t understand every part of the franchise agreement, there is no going back after you sign on the dotted line, which can spell trouble for you.
5) Not Establishing a Good Working Relationship with the Franchise Personnel
It’s incredibly important for the success of your franchise, that you have a great working relationship with your franchisor. You are in partnership together, so it’s only natural you go out of your way to meet and become involved with the franchise network. Not only is a good idea, it’s vital for your long-term success. Be sure to meet everyone before you sign the paperwork. It’s also helpful for you to see if the potential is there you won’t get along with the franchisor. It would be prudent to know.
6) Not Contacting Current Franchisees
Who better to ask about a franchise than someone who is already franchising? There’s no better way to learn than to sit down and discuss potential issues, share questions and concerns, how things turned out financially, and what you can expect in that first year. Have them give you a tour of the facility. Learning from the successes and mistakes of others is invaluable to your own success.
7) Not Seeking Advice from an Attorney
Part of this was covered previously, but it’s imperative that you seek advice from an attorney. The franchisor is looking to make the best deal possible that looks out for his end. You need to look out for your bottom line, but if you’re not in tune with their demands, you will be left in the cold. Make yourself aware of all the legal issues and concerns of the franchise. Even if you have a good idea of what everything is saying, you still need to hire help as assurance.
