If it looks too good to be true, it probably is. And this is certainly the case when you’re researching opportunities to become a franchisee.
Be cautious of franchisors that guarantee you success for very little effort. Of course, there are many benefits to franchising, but to become one of the successful franchises, you need to have dedication and determination, and be willing to work hard.
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Thankfully, the franchise industry is full of honest and ethical franchisors, but there are also a few that choose to bend the truth to get a prospective franchisee to sign the franchise agreement.
Good Franchises- What a Franchisor Will Never Say
Here are five things that a good franchisor will never say:
“If you don’t sign today, you’ll lose out on the opportunity.”
Probably the most important activity you can complete during the whole franchising process is the due diligence right at the start. The research into the franchise opportunity and the validation of projected financials provided by the franchisor is crucial to your ultimate success – but it takes time to do properly.
It can take weeks, even months, from your first conversation with the franchisor to the time you sign the franchise agreement. If you feel pressured to speed up the process or decide faster than you’d like, this should serve as a warning.
Don’t allow yourself to sign up to an investment because you’re panicked by pushy sales techniques. If the opportunity is right, then the franchisor will support you on your journey to become a franchisee, rather than making you feel forced into a decision.
“OK, I’ll reduce the franchise fee if you’ll sign today.”
So, if you’ve resisted the pressure being applied by the franchisor initially, what happens if they offer to reduce the franchise fee?
Although this isn’t always a bad sign, as discounts have their place in times of economic uncertainty, it isn’t always a good sign either.
Slashing the franchise fee ignores the fact that this payment goes towards the training and support system that’s in place for the franchisee. Less investment in this area may lead to fewer support staff, reduced training and less money for research and development. Ultimately, it deprives the franchise of the investment capital it needs to recruit quality franchisees and remain competitive.
So, a reduced fee may seem like a good idea, but your chances of success may also be lowered at the same time.
“You don’t need to speak to any of our other franchisees; they love it… Honest.”
A good franchisor should have nothing to hide and will welcome you to meet with existing franchisees. For those that don’t support your willingness to do this, you should ask yourself why.
When you do meet with franchisees, ask them questions about the training and support received versus expectations. How long was it before they started to break even? What’s it like to be a franchisee in the business? And, most importantly, if they had the chance, would they do it all again?
Existing franchisees should give you an open and honest account of what the franchise is really like, but a warning sign to look out for is the turnover of franchisees. Although it’s not realistic to assume that all franchisees are suitable for every franchise, if lots of franchisees have left, then you need to find out the reasons.
Is there a problem with the recruitment of franchisees? Is the training provided of a poor standard? If you’re having to ask these questions, then the chances are this is not a very successful franchise.
“The business works. We didn’t need a pilot to prove the concept.”
If a franchise has been operating profitably for many years, then this point is not as relevant as it is for less established franchises.
A pilot enables the franchisor of a newer franchise to evidence that the franchise can be successful and lucrative, not just on paper, but in reality, too. The pilot also allows the franchisor to provide financials and performance figures that are accurate and real, as opposed to being projections and forecasts.
Too often, an entrepreneur will presume that because they run a profitable business, that they can turn it in to one of the successful franchises too. Unfortunately, this isn’t always the case and, unless you have proof that the concept works well as a franchise, then you may want to think twice before you become a franchisee.
Of course, someone must be the first franchisee in a franchise business, but if this is you, make sure that you’re given financial concessions to compensate for the additional risks that you’re taking.
“The franchise agreement is watertight. You’ll be wasting your money hiring a solicitor.”
Before you sign a franchise contract that is legally binding, and which is going to be in place for five to 10 years, it’s not just good practice to consult a solicitor, it’s essential.
Investing a few hundred pounds on a specialist franchise solicitor is nothing compared to the size of the franchise investment you’re signing up to. Don’t pay attention to a franchisor telling you that you’re wasting your money, as nothing is negotiable. It’s true that often the terms of the franchise agreement will not be amended, but that’s not the purpose of the review. The point is for you to protect yourself by having a clear understanding your obligations and restrictions as a franchisee. This applies both during the franchise contract and, more importantly, once the agreement has come to an end.
Trust your instinct
If you hear any of the above statements, it’s strongly recommended that you seriously consider walking away from the business opportunity. This can be tough. Particularly if you’ve invested a lot of time and effort into researching the franchise. But if you do decide to go ahead and buy the franchise, be prepared to pay for ignoring your instinct further down the line.
A summary of what to look out for when choosing a franchise
Before you take the plunge and invest in a franchise, you need to be certain that it’s the right choice. Even if the franchisor’s product or service seems like a great idea and is something that you’re passionate about, there are other factors to consider. Let’s now look closer at what a good franchise system should include, which should give you the reassurance you need when making this huge business decision.
1. The franchise’s concept should be unique enough to stand out from the competition. Make sure it has a USP that would convince potential customers to choose your business over the next.
2. It may sound obvious, but conduct thorough research to check that the product or service the franchise is offering is actually in demand. Don’t necessarily assume that smaller niche businesses won’t be in demand; just make sure to carry out market research to check that enough customers will want to buy it.
3. The franchisor should provide an exclusive territory for your franchise to operate in. Without this, you might not receive as much custom as you would have and reach your full potential.
4. The business concept needs to have been proven before expanding with the franchise model. You need to double check this, otherwise you’re taking a big risk and investing a lot of your hard-earned cash in a business that might flop when franchised. Look at how the business has performed in the past before making your decision.
5. You should compare the level of support that different franchises offer their franchisees. Many will offer initial training programmes and ongoing support. There might be a comprehensive operations manual that you can refer to, a franchisee helpline or training courses throughout the year. Some franchises will provide more support than others, so you need to make sure you choose one that fits your wants and needs.
You can weigh up whether a franchise with less support is worth it because of the lower start-up costs. But it is usually a better idea to choose a franchise that you know will train you well and help you become a successful and profitable business.
6. Drawing on the previous point, the franchisor should truly care about the future success of your business. The more successful you are, the better it reflects on the franchisor’s business too, so they should keen to see you thrive.
7. Ask the franchisor what steps they take to ensure that the brand continues to expand. This could be through frequent market research and regular meetings with the franchisees.
8. An easy way to tell if a franchise is credible is seeing if it’s a member of the British Franchise Association (BFA). The BFA is the ethical voice of the sector and sets standards on what counts as best practice. When deciding whether a franchisor can get membership, the BFA inspects their business model, examines the franchise agreement, makes sure franchisees could run a lucrative business and reviews the training and support provided.
Becky Martin, Point Franchise ©