A franchise opportunity can be both for first-time and experienced entrepreneurs. This is often the go-to option of many newbie entrepreneurs wanting to start a new venture. With a proven business model, you can leverage the existing customer base of a successful franchise and use their techniques, from the products and services they offer to the way they market the brand.
But like any other business opportunity, buying a franchise is not an easy feat. There are lots of factors you need to consider, including the type of business, your budget, and the franchise disclosure document (FDD) your franchisor will be providing.
Let’s say you are thinking about buying a Quick-Service Restaurant or QSR franchise. You already got the financial side of investing in a franchise covered. But if you want to get the most out of your new business venture, there are a few things you cannot afford to skip doing before you make the investment.
Get to Know Your Strengths
One reason many entrepreneurs buy a franchise is for them to leverage the business model proven to be effective. But that does not necessarily mean everyone who bought a franchise is deemed to be successful. Like any other business, franchises can have high failure rates.
One way to avoid this is to know your strengths before you even invest in a franchise. Knowing your personality type and what your specific strengths and weaknesses are will help you determine if your business of choice will fit your business of choice. If you find that you actually excel in the integral parts of running a particular franchise, then you can increase your chances of running a successful franchise.
Your friends, family, former bosses, and colleagues are the best people to ask about your strengths. More often than not, we find ourselves adept in certain areas, only to find out that some people are seeing different strengths we have not acknowledged before. Getting various insights from valuable resources is a great way to determine your strengths.
Listen to Other Franchisees
Franchisors pride themselves on having the opportunity to work with various franchisees over the years. They usually list their franchisee’s business locations, franchisor’s names, and their contact details. Don’t shy away from talking to their franchisees and ask them about their experience with the franchisor.
Some relevant questions you can ask can include the following.
- Why they chose the business
- The pros and cons of buying a franchise from the franchisor
- Any hidden costs you may not know about just yet
- Problems they encountered with the business
- How the franchisor helped them navigate business challenges
- Any relevant information they learn that were not disclosed in the FDD agreement
- How much are their budget and the amount they ended up spending
- How long it took them for the business to be profitable
- What is the toughest part of being a franchisee
- Would they recommend buying a franchise
- Will they do it again if given the chance
If a franchisor fails to provide you with the information of their franchisees, then you need to think twice before buying a franchise from them. You have the option to do your own research if you are not satisfied with their answers. Talking to at least five of their old and current franchisees will give you enough idea if the franchisee is worth your time and investment.
Look Beyond the Minimum Requirements
Think already know about the total investment fees needed to buy a franchise? Then, think again. There are many ongoing fees you will be paying like royalty fees along with other operating expenses that are often not included in the FDD. Think of your marketing, real estate, and other ongoing expenses you will need to keep the business running while waiting for it to be profitable.
Buying a franchise from a well-known brand may come with instant customers and revenue. But that is not enough guarantee that you will break even asap. For some franchisees, it takes at least six months before reaching profitability while others are not as lucky.
They had to wait at least a year before they find their business making money. And while you wait for the brand to become profitable, you will have to cover all the ongoing expenses. Don’t forget that you also have to provide for your own needs during the time your business fails to make revenue.
Calculating at least six months of your monthly expenses and saving up enough money to cover this is worth it before buying a franchise. This will give you enough buffer while waiting for its profitability. Don’t forget about your own personal expenses especially if you invested most of your savings and time on your new franchise.
A franchise purchase is never a quick decision to make. It helps to think about buying a franchise multiple times before making a decision. And when you do, make sure you consider all factors possible and never forget about the three things listed above.