Five Questions to Ask Yourself Before You Buy a Franchise

29/04/2018 17:00 | Start a business

Questions to ask yourself before you buy a franchise

If you're looking to become a franchisee and manage your own business, there are several questions you need to ask yourself before signing any contracts. While some franchise arrangements may seem so appealing its difficult to wait, deliberate planning and preparation are essential if you're to make the business work. Here, we take a look at five questions you need to ask yourself before any decision is made.

1. What is the franchises wider economic context?

Businesses don't exist in a vacuum and success isn't dependent solely on hard work and management skills. There is an enormous array of factors that can impact on a business' success, most of which are entirely outside of the control of a franchisee. The most significant and most important of these factors is the wider economic context. In other words what is happening in your chosen industry, in relevant markets, and in the economy as a whole? Is the sector experiencing a period of growth or is it contracting? Do consumers have disposable income and are they willing to spend it on your products or services?

Investing in a successful franchise necessitates a firm understanding of the current economic situation. If you invest in the wrong business at the wrong time, theres nothing youre going to be able to do to make it work. Successful franchises make the most of favourable market conditions, so its vital that you do your research and get a grip on whats happening to your industry as a whole.

2. Do my skills match those required by the business?

If youre buying a franchise, it's essential to know whether your skill set complements the business and industry youre entering. This usually isnt as easy as it sounds. In many cases, an individual will choose to enter an industry that they think suits their interests and abilities, without realising the true nature of the job.

For instance, a new franchisor with a passion for digital technology and computing decides to open a franchise that specialises in selling low-cost, high-quality computer parts. Their keen interest in digital tech seems to suggest that they're ideally suited to the business, and their extensive knowledge of computers puts them at an advantage. However, the primary means by which the franchise sells their parts is via sales calls. Unfortunately, the franchisee despises this aspect of sales and doesnt have the required skills to perform the role well.

When it comes to making sure your skills match those required by the franchise, it's essential that you understand what the position consists of and what will be required of you. Dont let an idealised image of the job distract you from the realities of business.

3. Can I afford the franchise?

When youre looking at financing your new franchise, its essential that you perform thorough financial tests to ensure you'll be able to afford the investment. While most franchises will provide you with figures for minimal personal investment and an approximate start-up cost, you'll require much more significant capital if you're to navigate the early stages of business successfully.

Though they sometimes succeed immediately, most franchises require a few months or even a year before they begin turning a profit. This means that they have to be able to continue operating at a loss (or breaking even) for this initial period. To do so, franchisees are going to require additional funds to support the business through these challenging early stages. When working out whether you can afford the franchise, it's a good idea to give yourself plenty of breathing room you don't want to be operating on razor thin margins through your initial setup period.

4. Is the franchisor being completely open with me?

Any franchise thats worth investing in will be completely open and honest with potential franchisees. Particularly when it comes to investment figures, licensing agreements and the franchise contract. A franchise that has little to hide is one that is happy its franchise model is an attractive business proposition with plenty of potential for growth. Those that do choose to make access to information difficult are far more likely to be concealing something that may diminish the appeal of their franchise.

As well as requesting all the information you require from the franchise itself, it's also possible to conduct research online. There are several websites where ex-franchisees discuss what it's like working with the franchisor and its also possible to find the contact details for existing franchisees, too. All of this is valuable information that may help you decide whether a franchisor/franchisee relationship is likely to work.

5. Am I going to enjoy this?

If you're going to head up a new franchise, you're going to have to commit to growing the business over a relatively long period. This means that you need to be sure that you're going to enjoy running the franchise for the duration of your ownership. It takes a specific type of person to both succeed and enjoy working within the franchise model. It also takes a particular kind of person to enjoy running a new business.

When considering the answer to this question, its important not to conflate the enjoyment of your product with the enjoyment of business management. For instance, a new franchisee may open up a sports-based franchise selling sports equipment because their greatest passion is sports. However, running a new franchise usually means long working hours, and there's a high likelihood that by opening a sports store they'll end up spending far less time playing sports and far more time managing the business. When you ask yourself, am I going to enjoy this?' make sure you know exactly what "this" is.

Conclusion

When preparing to open a new franchise, there are far more than five questions you'll need to ask yourself. However, our list of questions covers some of the most commonly forgotten or misunderstood aspects of preparing for a new franchise. If you're looking to get in on the ground floor of a fast-growing franchise, you need to ensure that you've thought of everything and that your decision is based on extensive research and careful consideration. Hopefully, our five questions will contribute to your new franchise's firm foundations.

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