If you’re contemplating becoming a franchisee but aren’t sure what the process is for doing so, you’ve come to the right place. Our handy, 10-step guide will walk you through all of the various preparatory stages you’ll need to consider if you’re to become the manager of your very own business.
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Guide to becoming a franchisee
1. Do your research
No matter what type of franchise you’re thinking of buying, it's essential that you perform extensive research before committing yourself. Whether it’s a big franchise or a small franchise, an established, big-name brand or an up-and-coming business, you should never sign up to a franchise without having developed a firm understanding of what the franchisor can offer you as a franchisee. Likewise, you need to know what the franchisor will expect of you. To find a franchise that best fits your skills and abilities, you'll have to be prepared. The only way to ensure you're prepared is by doing your research.
2. Discuss your options with relevant financial institutions
While some fortunate applicants will be able to fund their investment without relying on assistance from financial institutions, the vast majority of potential franchisees will need to approach a bank for funding. Many franchises have developed useful agreements with leading lenders, and it is possible to have anywhere up to 70 percent of the initial investment covered by a bank. However, you’ll still need to approach a lender to find out whether they’re willing to finance your franchise acquisition and, if so, what terms they can offer you.
3. Request legal advice
Franchising often involves a significant amount of complex contractual law. While it's not always necessary to take legal advice, we strongly recommend that you do. Legal advisors who specialise in franchise law typically have a great deal of experience in preparing potential franchisees for their new role. They know what to look for in the franchise agreement, are aware of basic contractual terminology and can steer you clear of contracts that aren't in your best interest. While legal advice may be expensive, entering into an agreement without having it read over can be even more costly.
4. Meet with the franchisor
As your preparations progress and you’re increasingly sure that you’re making the right decision, you should make time for a visit to meet the franchisor. The franchisor-franchisee relationship will be critical to your success. It's essential that you understand the type of individual, or group of people, that you’ll be working with. Make sure you’ve prepared a list of questions for the franchisor and don’t be afraid to request more information if their answers aren’t satisfactory.
5. Visit existing franchisees
Having met the franchisor, it’s time to contact existing franchisees. Typically, any franchisor that doesn’t have anything to hide will provide you with a list of contact details for all their existing franchisees. This gives you the opportunity to hear from those working on the front line of franchise operations.
6. Put together a business plan
As you prepare to sign the franchise agreement, it’s a good idea to begin putting together a new franchise business plan. This will involve collecting all available data and analysing it in a way that allows you to make projections for expected profit and turnover, as well as a variety of other financial measurements. This business plan may be used to support your loan application, so it’s a good idea to get a financial advisor to read it over or help with its creation.
7. Sign the franchise agreement
With everything prepared, it's time to sign the franchise agreement and commit to your future as a franchisee. This is a big step. Once you've committed to the franchise, it’s difficult to reverse your decision. Consequently, it's vital that you're sure that you’ve made the right choice. Don’t be pressured into signing the agreement – a good franchisor will give you the time you require and won’t rush you through the process. At this stage, there shouldn't be any significant doubts in your mind. All of your research and findings should point to the fact that this is a viable business with a healthy chance of turning a profit and you should know that you’re a good fit for the franchise.
8. Finish all applications
Now that you’ve signed the franchise agreement, it’s time to finish and finalise all other applications. The bank should come back to you with a decision regarding your loan application, while you can also push ahead with signing the lease for a property. It’s important to try to avoid signing a lease on a business premises until your finance has been approved and you've signed the franchise agreement. Otherwise, you might find yourself in trouble, should the deal fall through.
9. Receive training and support
To become a franchisee, you’ll need to go through an extensive training programme that prepares you for life as a manager of a new business. Most training programmes pass on the necessary skills required by franchisees, though there’s still a great deal you’ll have to learn on the job.
10. Open your new business!
Having completed all nine previous steps, it’s finally time for the grand opening of your new business. The franchisor will usually help launch fledgling franchise units by providing guidance, marketing materials and other types of promotional support. Make sure you make the most of this assistance, as successful franchisors will have been through this launch process numerous times and understand precisely what works and what doesn’t work.
Questions to ask yourself before buying a franchise
1. Am I 100 percent sure?
Franchises are already considered by many to be a less risky route to business ownership, due to having the backing of an established franchise. You can operate under a well-known brand that has an existing customer base, which means you should start seeing profits sooner. Also, franchises should have tried and tested business systems that have proven successful with other franchise locations. But franchising isn’t 100 percent risk free.
Make sure you are ready and understand that it’s a big commitment. Buying into the franchise and recruiting all the staff you need will usually mean you will start off being in debt. Therefore, you should make sure you have the necessary skills and qualities required to run the franchise successfully.
2. How much support do I need?
Reflect on your personality and existing skills and knowledge and make sure that the franchise provides the support you will need to operate the franchise confidently. You might rather take the initiative to work things out on your own, or you might want to run a franchise with a detailed operations manual and monthly support sessions.
Questions to ask the franchisor when buying a franchise
1. Please can I have a chat with existing franchisees?
It might be particularly beneficial to speak to franchisees that operate in similar locations to you, as a franchisee on a busy high street in a city centre might have a different experience to a franchisee at a service station. If you’re not happy with the list of franchisees the franchisor gives you to contact or still want to speak to more, politely ask the franchisor to have the contacts of some more.
2. Is the data you have presented me with strong and reliable?
Always examine market research and financial projections the franchisor presents you with carefully. You want to look out for the date the research was completed, how many franchises, employees or customers were involved and anything that has been glossed over and not explained properly. If in doubt, you could seek the help of an accountant.
3. How are the current franchisees performing?
As well as seeing how the business is performing as a whole, it’s important to see how the individual franchises are doing. This could include considering how profitable they are, what the franchisee budget is and how they predict revenue in new franchise locations.
4. What are the main issues for franchisees when starting out?
It’s natural for there to be at least a couple of minor teething problems when starting out, but it’s important that franchisors are honest about this and don’t try to conceal information.
5. Will I be using proven business systems?
You will want to make sure that the franchisor uses business systems that have already proven successful, including for marketing, pay roll, hiring staff and customer service.
Becoming a franchisee involves a great deal of dedication and is typically a long process. However, it’s vital that you don’t rush and that you take the necessary steps to ensure you're making the right decision. Don't be pressured into signing a franchise agreement until everything is in place and always seek guidance from industry experts if you have any questions. If you follow our 10 simple steps, you’ll soon be taking your first steps on the road to becoming a successful franchisee.
Becoming a franchisee involves a great deal of dedication and is typically a long process. However, it’s vital that you don’t rush and that you take the necessary steps to ensure you're making the right decision. Don't be pressured into signing a franchise agreement until everything is in place and always seek guidance from industry experts if you have any questions. If you follow our ten simple steps, you’ll soon be taking your first steps on the road to becoming a successful franchisee.
Becky Martin, Point Franchise ©