Become a Franchisee: What All First-Time Franchisees Should Know
For many, buying a franchise is the accomplishment of a lifelong dream to be the boss. And while it’s true that there are many benefits when you become a franchisee, it’s very different to any job you’ll have previously held. As a franchisee, you’ll need to take on several different roles all at once to build and maintain a profitable business.
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Here are eight things that all first-time franchisees should know before they sign the franchise agreement:
1. It’s hard work
Successful franchises don’t just happen overnight – although this is a common misconception. If you’re buying a franchise expecting a ready-made, lucrative business, then you’re likely to be disappointed.
Obviously, when you become a franchisee with a recognised brand name, then customers will have an awareness of the products or service you’ll be offering. But this doesn’t mean that from the moment you open your doors, they’ll come running in. This is even more true of lesser known franchise brands.
You need to be driven, determined and motivated to run a franchise. You must be prepared to put time and energy into making your investment pay off. Just like any business, you’ll need to work hard to make it a success.
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2. It’s unlikely that you’ll make a profit straightaway
This shouldn’t come as a surprise if you’ve had to approach the bank to fund your franchise venture. Your business plan will have outlined your projected cash flow and breakeven point, so you should be under no illusions about when you’ll start to make a profit.
Despite this, some new franchisees assume that because they see money coming into the business, they’re making a profit. It’s worth remembering that not only will outgoings need to be paid but, in the early days, the money made may not be enough to cover this amount.
Working capital will be needed to fund business expenses until your franchise is able to fully fund itself. An element of working capital may also be needed to guide your business through its ups and downs even when it is established.
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3. You’ll need to promote your franchise
Buying a franchise costs more than just the franchise fee. There are ongoing fees to consider as well, which usually includes contribution to a marketing fund. This amount tends to be a percentage of gross sales and is paid to the franchisor regularly to cover nationwide marketing campaigns.
This level of exposure is great for your new franchise, but as the marketing is at a brand level, it doesn’t raise awareness of your business locally.
To become one of the successful franchises, you’ll still have to spend significant time and money promoting your business at a local level. Local promotions can consist of discounts or competitions, sponsorship of a sports team in your area or donating prizes to a fete.
4. You’re the boss sometimes, but not all the time
The appeal of franchising is the chance to become your own boss with less of the risk. And although you’re in charge for much of the time, you’re also accountable to someone else. The franchisor has the ultimate control, yet you have the responsibility of the day-to-day running of the business. It’s a middle ground that some entrepreneurs may find difficult.
In truth, successful franchises are built on conformity, not freedom. When you become a franchisee, you must understand that you’ll be expected to follow the rules laid down by the franchisor. If you’ve got a strong entrepreneurial spirit with a desire to run things your way, then an independent business may be more suited to your personality than a franchise.
5. Remember, you’re buying a franchise, not a business
When you start your own franchise business it’s exciting and life changing. But it must be remembered that you’re buying the right to use the franchise name and system for a set number of years, not the business in its totality.
You need to work hard to make your franchise business a success, but you must also be prepared for when the franchise agreement comes to an end. If you want to continue running your franchise then you must expect to pay a renewal fee and sign a new franchise agreement, which is likely to have new terms.
6. Choose the right franchise
If you love what you do, you’re more likely to be successful at it. This is the same in the world of franchising. If you’re passionate about an industry or business and your skills match those required for the franchise, it’s probably the one for you.
Be mindful not to fall into the trap of only choosing a franchise because you love it though. You should also ensure that your skills and talents are aligned with the franchise. Through your due diligence, you should also make sure that the culture of the franchise is one that you can work within and become a successful business with.
7. Have a business plan
If you’ve never had to write a business plan, the thought of putting one together can be daunting, but it doesn’t have to be. There are plenty of templates, guides and tips for writing a robust business plan to give your new franchise the best possible chance of succeeding. Learn more about the importance of a business plan for franchisees in our article.
A business plan is so much more than simply a method of securing funding for your franchise. It’s also a valuable way to record your understanding of how your business will work. A well written plan will enable you to track your progress over time and can be used to recruit quality employees in the future by sharing your vision for the franchise.
8. There is a lot of research involved
You will need to research the industry in great depth before you sign the agreement. Otherwise, how can you be sure that it’s the right time, that the market is stable or that your product or service is in demand in that area?
Franchisors will also want to see that you are passionate about their franchise, and therefore the industry it operates in.
Even when your franchise has been active for a while, you still need to keep learning as much as you can about the state of the market. Keep an eye on emerging trends or any fads that you can capitalise on. For example, in the beauty industry, microblading is a relatively new trend that customers are going crazy for. For this reason, many beauty salon franchises now offer the service.
Building on this last point, let’s now take a look at what the franchisor looks for in potential franchisees.
How to impress the franchisor
Franchisors will have a clear image of the type of person they want to become a representative of their brand. At the end of the day, they have worked incredibly hard to create a business that is successful enough to expand by the franchise model in the first place. Therefore, it is important to think about whether you possess the desired qualities, and be sure to show these to the franchisor.
As a general rule though, here are some traits that franchisors look out for.
- Enthusiasm. You need to demonstrate that you are dedicated to the success and growth of the brand. This means not only how successful your franchise is on its own, but also how well all the others are doing. Show that you are well educated on the brand’s concept and its history and you can answer ‘Why have you chosen this franchise?’ comfortably and confidently.
- Being realistic. When you first get up and running, don’t be over ambitious in terms of your projected turnover. Be realistic so you can actually achieve your and your franchisor’s expectations.
- Experience. Although this varies from franchise to franchise, some might want you to have some sort of experience. This may be experience in the industry, or it may just be business experience. Either way, sometimes you can make up with what you lack in experience with being passionate about the brand.
You may also have some questions for the franchisor before you decide that you want to go ahead. Some of the main ones you may want to consider are:
- How successful is the business at the moment?
- How strong/reliable is your market research?
- What are the key performance indicators (KPIs)?
- What problems do franchisees usually experience in the initial stages?
- Do you provide proven business systems? I.e. in things like marketing, recruiting staff and health and safety.
- Is it OK to speak to existing franchisees?
You may also want to ask yourself:
- How much risk are you ready to take?
- How much support do you need?
- Do you trust the franchisor?
- What sort of business owner do you want to be?
- How much money can you spend?
Becky Martin, Point Franchise ©
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