Five Things Not To Do When Buying a Franchise

09/08/2018 08:00 | Start a business

Things not do to when buying a franchise

Buying a franchise is a huge decision to make. Even though youíre investing in an established brand name and have the support of the franchisor, you still need to be prepared to work hard and be driven to achieve success.

As with starting any business, you need to do your homework. You should only enter into a franchise agreement after performing thorough due diligence. It's more challenging to get out of a franchise contract than it is to get into one, so you need to be sure that you've found the right business partner before you commit.

To make sure that your route to becoming the boss is as smooth and straightforward as possible, here are five things which you should never do when buying a franchise:

1. Don't be rushed into anything

Excitement, nerves, enthusiasm: when you're about to start your own business, you're likely to be on a rollercoaster of emotions. But don't let your feelings cloud your judgement or lead you to rush into a decision before you're ready to do so.

Due diligence is not just a list of tasks you have to tick off before signing a franchise contract. Itís a process that takes as long as it takes until youíre completely comfortable that youíre making a fully-informed decision.

Don't set a time limit on your research and don't feel pressured into agreeing to anything sooner than you're ready. If a franchisor is insisting that you make a payment or sign the agreement before youíve completed your due diligence, this should act as a red flag. It's in the franchisors' interests that you only become a franchisee if youíre absolutely certain that itís the right move for you. If youíre feeling pressured, then proceed with caution.

2. Don't take the franchisor's word for it.

When a franchisor presents you with financials, you shouldnít be afraid to ask them to clarify how they have arrived at these figures. Also, you should remember, that any projections provided should only serve as a basis for you to develop your business plan and forecasts on. Use them as a starting point as part of your research to validate the franchisors' claims.

As well as the numbers that the franchisor gives you, you can obtain copies of filed accounts for the business. These are documents which can be viewed by the public and will provide you with an accurate picture of the financial status of the company. If youíre not familiar with reviewing such financial documentation, then you should consult an accountant that specialises in franchising to help you understand the figures.

Of course, the amount of money you can make isnít the only factor to consider when buying a franchise, but it does play an essential part in your decision-making process. As well as job satisfaction, flexibility and support, you also want confirmation that you can generate a positive return on your investment. This is why it's vital to back up the franchisors' claims with your own findings.

3. Donít spend more than you can afford

Franchises cost a lot to buy. This is one of the most common myths about franchising. With over 900 franchise brands operating in the UK today, there will be a franchise opportunity that suits almost all budgets.

Needless to say, if you want to invest in a McDonald's or a Starbucks, you'll need to have significant finances, but there are also a wealth of affordable franchises available. To understand how much you can invest in a franchise you should start by listing your assets and your liabilities. The difference between the two is known as your net worth. Most franchisors set a minimum requirement when it comes to your net worth, so bear this in mind when reviewing franchise options.

The most important thing is not to invest in a franchise where you may be undercapitalised. Running a new business is challenging enough as it is without the added stress of not having enough money. Itís unlikely that your franchise will be immediately profitable and so you should make sure you have enough capital to operate until your business starts to make a profit.

By choosing one of the many affordable franchises available, you can achieve profitability sooner than if you select a business with a high initial fee and many overheads.

4. Don't keep quiet

Starting a franchise can be daunting. There will be lots of elements of the franchise contract and the franchise business model that you donít understand but donít feel embarrassed to ask for things to be explained. The franchisor has a wealth of experience, so prepare a list of questions for them so you can get an in-depth picture of the franchise.

Also, consult a solicitor that has franchising expertise to help you understand the terms of the franchise agreement. You shouldnít sign up to buy a franchise without fully comprehending what your responsibilities will be as a franchisee. Work with your solicitor to question any terms that you deem to be unfair as there may be some room for negotiation.

If the franchisor can't answer all your questions, take time to speak to existing franchisees from within the network. They will give you an honest opinion about what the franchise is like to be a part of and can help you fill in any knowledge gaps.

5. Don't think you need to know it all.

The franchise model is ideal for aspiring franchisees who donít have any previous experience of business ownership. This is because you get access to all the training and support you need to be able to own and operate your franchise.

Embrace this and take every opportunity to learn. The franchisor will have spent years developing and improving their business model, making mistakes along the way. Thankfully, you donít have to make the same mistakes. Accept that the franchisor has all the know-how and expertise needed to run a successful franchise and be willing to learn as much as you can.

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