How to avoid making mistakes as a franchisee

10/07/2018 08:00 | Start a business

Avoid mistakes as a franchisee

For many aspiring entrepreneurs, the dream to become a franchisee is one driven by the desire to be the boss while enjoying the support of an established business. And most franchisees relish the franchise business opportunity.

In fact, according to the British Franchise Association / NatWest 2015 survey, a whopping 91% of franchisees stating that theyre satisfied with their franchise. Combine this with the failure rate of just 2.2% compared to the much higher start-up failure rate of independent businesses, and it all seems too good to be true.

And theres no denying, that for some, a franchise doesnt result in happiness and success. The franchise model is very different from other forms of business ownership and doesnt suit everyone. But for many, signing a franchise agreement and going into business for themselves but not by themselves, is the perfect arrangement.

If you think that youve got what it takes to become a franchisee, here are some common pitfalls to avoid to increase your chance of success.

Speak to your loved ones

Buying a franchise comes with lots of benefits, but there's no getting away from the fact that it's hard work. Particularly in the early days, you'll find yourself working long hours, late nights and weekends. This is because the more effort you put in, the more successful you'll be.

Of course, this wont just impact your life. When youre dedicating blood, sweat and tears to get your franchise up and running, it affects your friends and family too. Those close to you need to understand how much of a sacrifice youll have to make and what this means for them.

Before you even consider starting your own business, sit down with your loved ones and discuss the pros and cons of buying a franchise. You can only truly succeed as a franchisee with the support and understanding of your family, so it's important to get them on board from day one.

Get your finances in order.

Some prospective franchisees assume that the franchise fee is the only cost associated with buying a franchise. Dont fall into this trap. There is much more to a franchise business opportunity than just the initial fee. You must understand the full costs and ensure that you can finance them before you agree to purchase a franchise.

The costs youll need to fund, in addition to the initial franchise fee, can include the ongoing royalty and marketing fees, as well as set up costs. Setting up your franchise can consist of paying rent on premises, shop-fitting costs, vehicle lease, stock and equipment purchases. You should also make sure that you have enough working capital to fund your franchise until its turning a profit.

Once youre sure of the costs involved, you should be able to answer the following questions:

  • Whats the total cost of the franchise investment and how much of a contribution can you make?
  • If you need to borrow the remaining amount, how much do you need?
  • What is the best type of lending to secure? For example, you may need a loan to buy stock and equipment and an overdraft to help with cash flow.
  • What term will you repay the loan over? Remember that it will need to be paid back by the end of the franchise term so be mindful not to borrow more than you need.

Many high-street banks have specialist franchise departments to help you get your finances in order.

Review the franchise agreement thoroughly

The franchise agreement is a legally binding document, and so it's crucial that you review it and fully understand what's expected of you. The biggest mistake you can make when buying a franchise is to be uncertain of your legal obligations.

This is why it's important to consult a solicitor that specialises in franchising to help you to review and understand the franchise contract. It can be a lengthy and complicated document and is best evaluated by a professional with the relevant experience.

A lack of understanding of your obligations can result in you not being happy in your role as franchisee, or worse, your business failing. You could also find yourself in breach of the franchise agreement if you don't comply. The details will be in your contract, but examples of breaches can be:

  • Non-payment of fees
  • Failure to provide accounting information
  • Misuse of brand name or trademarks
  • Not hitting agreed targets
  • Any action that brings the franchise brand into disrepute
  • Failure to adhere to the operations manual

You should be aware that its also possible for you to breach the agreement after it has terminated or expired, as some obligations will continue after the end of the franchise term.

Know what to expect

It takes a particular type of person to become a franchisee, so for you to succeed, you need to understand if this is the business model for you. Its easy to get caught up in the excitement of becoming your own boss and overlook the monotonous day-to-day jobs that need to be done as a business owner.

Running a franchise can be tough, and you'll need to wear many hats in your role as franchisee. You'll enjoy some of these more than others, but to operate a profitable business, you need to take responsibility for all of them. You also need to be sure that you'll be able to follow the rules. Consistency and uniformity are essential elements of a franchise, so if you think you'll have a problem adhering to the franchisor's system, then franchising may not be for you.

By avoiding these common mistakes, youll be in a great position to make an informed and confident decision about the right franchise business opportunity for you. Being a franchisee can be a rewarding and lucrative career choice, but if you fail to do your research before joining a franchise, it could turn into a nightmare rather than the realisation of your dreams.

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