Top 10 things you should know before you become a franchisee
The decision to become a franchisee can be a great one if you're a budding entrepreneur but donít want to create a new business from scratch. Itís easy to understand the appeal. You buy into a model that has been tried and tested with a proven track record of success. You also have a ready-made customer base just waiting to spend their money on your brand.
But owning and operating a successful franchise can be much more complicated than just finding a brand you like and investing your hard-earned cash. Before you part with the franchise fee, you must be prepared. Let us help you a little by sharing the top 10 things you should know before you sign on the dotted line.
Our top 10 traits of a successful franchisee
1. Assess your personality
Franchising isn't for everyone. Yes, it's a great opportunity, but it takes certain personality traits for a franchisee to succeed. Before you start to look for a franchise to invest in you should consider whether the model is right for you.
Firstly, you should be willing to relinquish control over some aspects of your new franchise. The franchisor is ultimately in control of nearly every aspect of the business. This is because the overall success of the franchise depends on the consistency of the brand, products and services. However, if you're prepared to take advantage of running a well-established business according to strict, but necessary rules, then franchising is a perfect fit.
Next, you should give some thought to your appetite to risk. Starting your own business can be fraught with risks, and many entrepreneurs are prepared to do what it takes to make their venture a success. Inevitably, there are risks associated with any business but choosing the franchising route can help mitigate many of these.
Finally, you need to understand that youíre going to have to work hard. When you become a franchisee, there are many benefits, but this doesn't mean that it will be stress-free. Successful franchisees, just like independent business owners, have to be dedicated, committed and hardworking.
2. Get your finances in order.
The franchise fee can vary from a few thousand pounds to over a million. However, when you're assessing your finances, you need to consider more than just the franchise fee. You also need to consider the additional costs associated with setting up your franchise. Costs such as rent for business premises, equipment, insurance, licenses, and more. You should discuss these fees thoroughly with the franchisor so that youíre clear about what the total investment is likely to be.
Youíll also need an element of working capital to fund the franchise until it breaks even. Itís recommended that you have enough working capital to cover the first six months until your business becomes more established and starts to turn a profit.
And once you're up and running, youíll need to pay ongoing fees. Itís likely that youíll pay royalty and marketing fees which are calculated as a percentage of your gross sales. Take time to understand your ongoing financial obligations as this is crucial for the continuing financial health of your finance.
3. Do your homework
The average term of a franchise agreement is five years, so before you invest in a business opportunity, you must do your research. Review the financials, learn who your competitors are, find out if there is a need for the franchise in your area. The due diligence you commit to doing before you sign the franchise agreement will pay dividends in the long run.
4. Speak to existing franchisees
If you've found a franchise that you're interested in, then you should ask the franchisor if you can speak to some of the existing franchisees. A good franchisor will encourage you to discuss the franchise opportunity with their active franchisees. Itís in their interest to make sure youíre making an informed decision. However, if a franchisor refuses to give you details of their franchisees or attempts to cherry pick the franchisees that you meet, then this should serve as a warning sign.
Ask the franchisees how long it took them to become profitable, what's the most challenging part of running the business, and how supportive the franchisor is. The answers to your questions should help you decide whether the franchise is right for you.
5. Consult franchise professionals
Franchising is a unique business model, and so you should always consult the experts in this field before you become a franchisee. Whether it's a financial advisor or a solicitor, you should always make sure that they have expertise and experience in franchising to give you the best possible advice.
6. Write a business plan.
If you need finance from a bank to fund your franchise, youíll need to have a robust business plan in place. This document is essential to the success of your franchise and helps you to understand the challenges and opportunities that you may be faced with while running your business. The franchisor should be able to provide you with much of the detail you need to complete your business plan and a template if needed.
7. Understand what is expected of you
The franchise agreement can be a lengthy and complicated document and is generally more favourable for the franchisor. As itís a legally binding document, you need to fully understand what youíre signing up to. The contract can be tough to get out of once you committed to buying a franchise so make sure you know what will be expected of you.
8. Make sure your family are on board.
Running a franchise requires a lot of hard work. Working long hours and weekends, particularly in the early days, can put pressure on both you and your family. Before you invest in a franchise, make sure that your loved ones know what will be expected of you too.
9. Donít grow too fast
When you become a successful franchisee, it can be tempting to expand your portfolio by purchasing additional franchise locations. Although this can be a lucrative revenue option, it can also have a negative impact on your existing franchise. Itís better to have one profitable franchise than two struggling outlets.
10. Plan to leave
It may seem strange, but shortly after you've started your franchise, you should plan how you're going to leave it. Having an exit strategy in place makes the end of your franchising journey as smooth and uncomplicated as possible.
The Editorial Team, Point Franchise ©
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