Making your mind up: Top 5 things to consider before you invest in a franchise

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Things to consider before you invest in a franchise

If you’ve always dreamed of being your own boss but don’t know where to start, then you may want to consider making a franchise investment. Unlike starting a business from scratch, you won’t have to come up with a unique business concept, develop processes and systems, and build brand awareness.

The franchise model allows you to follow a proven system which has been tried and tested over time. You’ll also receive comprehensive training and support so that you have all the know-how to make your franchise a success. For this reason, franchising is considered a much safer bet than setting up an independent business.

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Investing in a franchise? What to consider

But before you sign a franchise contract, you need to think about many factors that could impact your ability to operate a profitable business. Here are the top five things you should consider before you make your franchise investment.

1. Is there a demand for your product or service?

As with any business, a franchise will only be successful if there is a demand for the product or service you plan to offer. This is why it's vital for you to do the appropriate due diligence.

Review the location you intend to open your franchise and then check out your competitors. Some competition is a good sign as it demonstrates that there’s a demand for the product, but too much competition suggests that the market is already saturated. And no competition at all isn’t a great sign either. This could mean that there isn’t a market for your product or service in the area.

If you’re planning on expanding your franchise portfolio in the future, it’s best to assess whether there is scope to become a multi-unit franchisee at this stage. Is there enough demand to sustain more than one franchise, not just at your planned location, but also in the surrounding areas? If you don’t feel that there’s enough scope to grow with the brand, it may be worth looking elsewhere to invest.

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2. Has the franchise got a proven track record of success?

Not all franchise opportunities are equal. You shouldn’t assume that just because a franchise is available that it is worth investing in. Make sure you do your homework. Find out as much information as you can about the business and the franchisor to assess how successful the franchise is.

You should also consult an accountant that specialises in franchising to help you to review the projected financials that the franchisor has given you. Doing your own calculations to verify the franchisor's claims will provide you with more confidence when making your franchise investment.

If possible, it’s also recommended that you speak to current franchisees about their experience of the franchise too. This way you can get an honest opinion about the support the franchisor provides and how quickly they were able to turn a profit.

If the franchisor is not prepared to give you the contact details for existing franchisees or tries to select the franchisees you speak to, this should act as a warning that all may not be as it seems.

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3. Can you afford the franchise investment?

There are many benefits to the franchise model, but this can come at a cost. Depending on the industry you choose, along with the size and credibility of the brand, a franchise can require a hefty investment. You should remember that as well as the initial franchise fee you’ll need to pay ongoing royalty payments too.

If you’re confident that buying a franchise is right for you, then you should first understand if you can afford it. By calculating your assets and capital, you should know how much you can contribute towards the purchase of your new business from the start and how much you can afford to continue the investment.

The cost of franchises can range from a few thousand pounds to hundreds of thousands. To ensure that you’re considering a sound investment, review the franchise contract and evaluate what you’re getting in return for the franchise and royalty fees. You should also give some thought to how long it will take you to break even as you’ll need an element of working capital to fund your franchise until it starts to make a profit.

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4. What training and support are available?

A considerable advantage of franchising, particularly for first-time franchisees, is the training and support that’s available. You need to be happy with the quality and quantity of training that’s detailed in the franchise contract before you sign.

The training you receive can impact your chances of being successful, or not, so it's vital that you feel that the training programme proposed is adequate. As well as a comprehensive initial training programme, you should check that ongoing support is provided.

It's essential that you have the franchisor, or their support team, to turn to when times get tough. If this guidance isn't on offer, then you should consider whether this is the right franchise for you.

5. Are you willing to follow the franchisor’s system?

The most important aspect of the franchise model is consistency. Customers will only trust a franchise brand if they’re confident that they’ll receive the same quality of products and service whichever location they visit. The key to this uniformity is the result of a franchisee’s ability to adhere to the franchise system.

It sounds simple, but franchising isn’t for everyone. If you’ve got a strong entrepreneurial spirit and prefer to be in total control to do things your way, then an independent business may be a better option for you.

However, if you’re happy to be the boss, but accept that the franchisor ultimately calls the shots, then running a franchise could be your route to success and profitability.

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