If I’ve seen it once, I’ve seen it a hundred times. You’ve found a franchise system that speaks to your desires – whether those desires may be profit, passion, or anything in between. Whatever the reason, you’ve found your opportunity and are ready to spring into action. Just when it feels like you should be sprinting towards your dreams, I challenge you to pump the breaks. Purchasing a franchise is no light matter. Especially when signing a Franchise Agreement, a tightly-knit and lengthy contract filled with legalistic terms, there are many reasons why you should take your time in this process and really make sure your bases are covered before you dive in. Below are just a few precautionary tactics to make sure you have everything you need before you buy a franchise:
1) Know yourself before you buy a franchise. Both financially and emotionally, your franchise will become an extension of you. Be sure you’re selected an opportunity that fulfills you, motivates you, excites you, and will satisfy you. Five years down the road, you don’t want to feel trapped because of this opportunity but uplifted. Before doing any research, take some time to figure out your own interests. Determine your long-term strategy for getting into franchising. This will form the foundation that you can then build upon.
2) Educate yourself. It doesn’t take an expert in your specific franchise industry to make a good franchisee. The best franchisees often have a business background with experience understand basic business principles, and how to read and understand basic accounting statements. You’ll need to familiarize yourself with balance sheets, profit & loss statements, cash flow statements, etc. If your franchise is underperforming, overperforming, or anywhere in between, you’re going to want to be the first to know.
3) Determine what your role will be. You may be thinking to yourself I’ll be the franchise owner, obviously but it goes deeper than that. Think ahead to when your business opens its doors. Will you be at the forefront of the efforts greeting customers and shaking hands, or do you prefer to be behind closed doors crunching numbers and watching your profits trickle in? If you align more with the latter, ask yourself who will be the face of the business? Someone’s got to do it. Have you budgeted for a full-time manager who will handle these interactions? Oftentimes, franchises require active ownership participation, so do an honest assessment of your strengths and weaknesses to determine if this is truly the opportunity for you.
4) Don’t just research “hot” franchises. If I had a penny for every time somebody asked me what the hottest franchises were to invest in… let’s just say I wouldn’t be sitting here writing this blog post. Getting caught up in what’s hot and what’s not is a recipe for disaster. Just because other people are putting their eggs in one basket, doesn’t mean you ought to as well. In fact, you’re better off finding a less saturated market, namely one that actually strikes your interests outside of the desire for profit. Limit your search to franchises that are within your interests and go from there.
5) Get involved in the community within a 10-mile radius of your prospective franchise location. In order to sell to your community, you’re going to have to know your market. Do some research to see where other franchise locations position themselves. Buying into a fitness franchise? Maybe the vacant spot next to the health foods store would drive health-conscious individuals toward your business. Buying a daycare facility? Look for schools, libraries, office buildings where potential parents may enjoy the convenience of dropping off their kids at a nearby location, etc. It’s not rocket science – just logic. Once you have found your golden location, be sure you develop relationships with those around you. Not just potential customers but also the businesses you’ll be sharing spaces with. If your neighbors are already guiding customers their way, chances are you can route them your direction as well.
6) Only believe about 50% of what the franchisor tells you. While the franchise corporate team is made up of wonderful, qualified individuals I’m sure, never forget that their job is to sell franchises. The numbers they give you will be based on averages over their entire system and will not necessarily be reflective of what you will make or even potentially make. The #1 best way to prepare for buying a franchise is by speaking to as many franchise owners as you possibly can. This includes current and former owners. Former owners are a unique resource if you can get in touch with them so that they can walk you through any potential pitfalls they experienced and better understand if their failures are something your business would potentially be in danger from as well. Formulate a detailed list of questions to ask current and former franchisees and contact as many of them as you can.
7) Hire professionals to help. Have I mentioned how dense the Franchise Disclosure Document is? Chances are you’ve never seen one before, and they are filled with technical and legal jargon that can be impossible to decipher if you don’t have a guiding hand. You should never sign an FDD without first hiring a franchise attorney to walk you through it. Additionally, you should have a CPA review the numbers. And you need to have an insurance person and a banking relationship.
8) Plan for tough times. While a profitable and satisfying future looks promising, you can never be too safe. Nobody was ever disappointed from being too prepared. While you aren’t guaranteed to experience any issues, in the event that you do, you need to be prepared so you can work your way through them. It is nearly impossible to appropriately budget for this type of venture. You just never know when something will come up that wasn’t planned for or when something will go wrong. Understand that the costs will likely be two or three times more than you expected. Have a safety net. Then dive in eyes wide open.