First-Time Franchisee Checklist

01/05/2018 16:00 | Start a business

First time franchisee checklist

Buying a franchise can be the ideal way to become the boss with less of the risks that independent business ownership can bring. Rather than having to start a business from scratch, a franchise investment allows you to enjoy the benefits of joining an established business model with an existing customer base and proven track record of success.

However, buying into a proven franchise model does come at a cost. Before you make a franchise investment, you should understand whether you have what it takes to become a franchisee. Adhering to the franchisor's strict rules isn't for everyone, and it could be a costly mistake if you sign the franchise agreement without a full appreciation of whats expected of you.

So that you can confidently start your franchising journey, here is a checklist of things to research before buying a franchise for the first time.

Is there a demand for the product or service?

It can be easy to get carried away with the excitement of starting your own business, but first, you must assess if there is a demand for the franchise that you're looking to invest in. It's pretty pointless opening a coffee shop on a street with three other coffee shops as your ability to make a profit will be hindered. But choose a location which has successful restaurants and fast food outlets already in situ, then its a sign that this is a popular area for consumers to come to eat so your coffee shop will thrive.

How much can you afford?

There may well be a need for a coffee shop in your preferred location, but if your budget doesn't stretch to owning a franchise such as Dunkin' Donuts or Esquires Coffee, then you may want to rethink your plans. Although many high street banks are prepared to offer finance to help you purchase a franchise, you'll also be required to fund part of the franchise fee too. You could either decide to invest in a less costly industry to limit some of the financial risks for your first franchise investment, or you could think outside the box. An opportunity such as Cafe2U is a mobile coffee franchise which requires significantly less investment than a coffee shop with fixed premises.

Also, you should remember that as well as the initial franchise fee, most franchises apply ongoing fees. These contribute towards the continued support and training youll receive, maintenance of the franchise system, and brand level marketing campaigns. The fees are generally charged as a percentage of the profit that you make and will need to be paid alongside any other business expenses such as rent, equipment hire and staff wages.

Is your territory exclusive?

Just because there are no immediate competitors in your chosen location, there is nothing to stop your franchisor opening another unit within the same area. Of course, there is minimal incentive for your franchisor to do this but before buying a franchise, you need to understand whether your territory is protected or not.

Being awarded an exclusive territory means that you get reassurance that you can operate under the franchise brand without competition from another franchisee from within your network. Your area will generally be based on geographical terms, and before you agree to accept the terms, you should be confident that there are a sufficient number of prospective customers within the area for you to build a profitable business.

Is there growth potential?

If you decide that the franchise model is a perfect match for your ambitions, you need to ensure that your franchisor shares your goals for long-term success. It doesn't matter how dedicated, determined and passionate you are, you won't be able to grow your business if your franchisor doesn't have similar expansion plans. Find out what the plans are for the franchise brand and if your franchisor will support your desire to purchase additional franchise units when the time is right.

Have you spoken to other franchisees from within the network?

Incorporating discussions with existing franchisees within the network is a crucial part of your due diligence. There is no one better placed than a franchisee that has already purchased a franchise and is running their own business to tell you whether youre making the right decision.

Good franchisors should encourage you to meet up with other franchisees within the network. They will want to ensure that youre making an informed decision before you sign on the dotted line. Their success depends on your success, so only recruiting franchisees who understand the ins and outs of the franchise model and all that comes with it is in their best interests. If a franchisor tries to stop you meeting up with franchisees, or attempts to cherry pick who you speak to, then this should serve as a warning sign that this may not be the best franchise to invest in.

What are your rights when it comes to selling up?

It seems strange to think about selling your franchise before you've even started, but it's essential that you consider it right from the get-go. Regardless of the reason you want to sell up in the future, you need to understand how you go about it and who can purchase your business. Franchise resales can be complicated and there are certain fees and restrictions that you need to be aware of.

Buying a franchise is no guarantee of success, but by being prepared and understanding what it means to be a franchisee, you're much more likely to become a success. Remember, assess your market, understand the costs and know your rights; and youll be well on your way to running a profitable franchise business.

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