8 things you should work out first if you're thinking of buying a franchise

IT WOULD NOT be an overstatement to say virtually every type of business – and business model - is being franchised today in one form or another.

However, with so many choices available, it can be difficult to know what is suited to you. These are some of the most important things I believe you should know if you plan on becoming a successful franchisee:

1. Know what you want to do

You’re going to be buying a business and it may be worth assessing first what skills you have that can be applied to being a successful business owner. Unfortunately, too many people see themselves involved with a particular brand because they have been doing exactly what the franchise offers… as a hobby.

Such people firmly believe that, as a long-time hobbyist, they already know the ins and outs, require minimal training and are well on their way to instant success. Unfortunately, the reality often proves the exact opposite.

Running a business and having a hobby are two very distinct and separate things. As a hobbyist, you have no structure, timelines or reporting responsibilities and certainly no bottom-line requirements. A franchise, by definition, is a system that has to be followed in all areas on a day-to-day basis.

Rarely can a person who has been even a keen and devoted hobbyist convert to a franchise environment with its guidelines and structure. If you are thinking of turning your hobby experience into a franchise situation, look carefully at all the ramifications.

2. Know your systems

The advantage a franchise has over starting up your own business is that the most successful franchises are built on established processes that have been shown to work. If the franchise your considering can’t demonstrate these, from payroll to marketing, then you need to tread with caution. A key question would be how long the franchisor has been selling their model.

3. Know your earnings potential

Evaluating the earning potential of a franchise can be difficult, especially if it involves territorial exclusivity. Naturally you should request as much financial information as the franchisor is able to supply. In addition, ask them to introduce you to existing owners so that you can get first-hand operating experience.

4. Know your supports

Just because you’re awarded a franchise doesn’t mean you have acquired a silver bullet for success. The success of your franchise is very much in your hands, however franchisor support will be a key ingredient. Ensure that you understand the franchisor’s training and support systems and, especially, their ‘after-launch’ support and mentoring programme.

5. Know who’s here to stay

A franchise that has stood the test of time, through economic peaks and troughs, must be doing something right. Indeed, it speaks volumes for the processes and business models the organisation has put in place. With so many new franchises popping up all the time, it’s hard to say how many will survive and how many will crash and burn. Check out their history.

6. Know the true costs

The initial cost of setting up a franchise can be quite significant. It’s important to know just what you’re paying for and what the total start-up cost is going to be.

Review the franchise agreements and watch out for hidden fees in addition to the royalty payments, such as required marketing fees or training. Also, remember that budgets often take longer than expected to work, so always allow extra time and cash for the start-up period.

7. Know what others think

Ultimately, when you’re buying a franchise, you’ll most likely speak to the franchise sales people and others from the franchise’s HQ. All too often, what they’re focussed is on getting you on board.

Therefore, as suggested above, prospective franchisees should always speak to other owners and, wherever possible, actually meet with them – especially if they have a franchise format that is open to the public. This enables a prospect to see the business in action, which is one of the best information sources available.

8. Know the rules

Great franchises are built by those who can put to use their entrepreneurial flair, particularly in areas such as marketing and product/service placement, while operating within the organisation’s systems.

Some franchises are very strict about just what you can and cannot do, while others are more liberal. It’s important to be sure you’re comfortable with the degree of freedom your particular franchise offers. If you are a consummate entrepreneur, franchising may not be for you as you probably like to re-invent the wheel several times each month – which is definitely not the franchise approach.

Paul Teahan is the master franchisor for The Interface Financial Group Ireland.

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