The road to purchasing a franchise is often paved with pitfalls. Thankfully, the franchise model has been around for long enough that we can learn from the mistakes of others as they teach us what not to do, as much as they show us what to do.
The franchise model is attractive to potential business owners as the brands involved often have foolproof business plans and marketing packages that really help you out when you’re getting started. The same can be said of common mistakes. Some brands will offer you a realistic look in their FAQs that acknowledge easy-to-make mistakes while advising you how to prevent yourself from making the same blunders.
When you’re looking into buying a franchise there are several key points to keep in mind. These will save you time, money, and hassle in the long run.
What Are the Advantages and Pitfalls of Buying a Franchise?
The advantages of buying a franchise are primarily the well-defined and extensive support networks available to new franchisees. Franchises typically have a lot of data that can help you visualize your path to success. Many franchises also offer tried and tested business model blueprints, while also having key information on successful marketing tactics and customer acquisition. This prevents learning by trial and error, saving time and money in the long term.
However, an informed decision means being aware of the challenges of buying a franchise. As with other business investments, it’s imperative that you have full control over your budget. Franchises come with a wide scale of initial investments, ongoing contributions via fees and royalties, as well as the actual running costs themselves. A full financial analysis is necessary to ensure that you can both cover the capital investment and have some money available to maintain your business while you’re building your customer relationships.
Many questions will arise during your research. Make sure you have the answers before signing any agreements.
Questions to Ask When Buying a Franchise
Franchise problems arise when the right questions have not been asked or answered. It seems a very transparent and straightforward way to business ownership, but not all franchises are the right fit.
Some questions you must ask yourself:
- Should I buy a franchise?
- Is this the right industry for me?
- Am I passionate about this franchise?
- Do the brand’s values align with my values?
These questions can be answered with in-depth research and self-reflection. When you’ve narrowed down to a few options, try speaking with the brand’s franchise representative and other franchisees. This will help you determine if the franchise is a perfect match.
Reaching out to other franchisees is the best way to get a realistic understanding of the day-to-day business from lived experience. Owning a business can be tough, so there’s no point in ignoring the challenges. Having a well-rounded understanding of the benefits as well as the challenges of buying a franchise will help you decide if this is the type of challenge you want. Overall, you will make a more informed decision and face fewer surprises down the line.
Other questions to ask focus on the potential success of your business:
- Is the location ideal?
- Is there a demand for this product/service in this place?
- What competition is nearby?
- Does this brand have local support/reflect the values of the community?
- What is the capital investment?
- What are the ongoing costs to run the franchise?
- What support is available from the franchise headquarters?
The more questions you ask, the more likely you are to have a complete picture of the expectations and implications of buying the franchise. While investment values vary to the extreme, more knowledge can help reduce the risks of investment.
Franchise Problems and Examples
Learning from past mistakes will help you leap forward to success. Take Quiznos for example. By putting too much financial strain on franchise owners, without offering much in return, individual franchises failed to make enough profit to stay afloat. Poor management and unsustainable costs resulted in a poor return for Red Lobster. After ruling the market for years, Blockbuster eventually closed after failing to adapt to changing market forces and consumer preferences. Pizza Hut lost out on the lion’s share of the pizza market to Dominoes after becoming too comfortable with the status quo. 7/11 owners took on too much debt for expansion plans and were caught short by a shifting economy.
Others have paved the way so that we don’t have to repeat these unfortunate examples. That’s why it’s important for you to vet your potential franchise relationships to ensure that you avoid tying your capital investment up in a web of mismanagement and economic short-sightedness.
Reasons Why Not to Buy a Franchise?
As specialist franchising consultants, the team here at Guerrilla Franchising is often asked “What is the most significant disadvantage of owning a franchise?” This is very subjective, however through our extensive work with franchisees, we’ve concluded that it’s the limited control over the business that most disappoints franchise owners.
Depending on your goals and circumstances, this could of course be of benefit to you. Many entrepreneurs are eager to get started in business ownership by following a defined, airtight blueprint while having a support network available to help when needed. However, some can become disillusioned by the rigid parameters set by the brand.
The full extent of what the brand expects and what controls you have should be set out in the franchise agreement. These can be overwhelming for newcomers to the franchise world. Having a lawyer or franchise consultant look over your agreement alongside you can make sure there are no clauses missed and that you are fully aware of the extent of control you have over your franchise business.
The franchise agreement will detail all the benefits you will receive (such as support, access to suppliers, etc.) as well as the expectations the brand has of you. A close reading of the agreement will help you decide if this is 1) worth the capital investment, and 2) a relationship that you can be happy with for years to come.
Should I Buy a Franchise?
There are hundreds of thousands of franchises open in the US. Some of the top-performing brands are doing exceptionally well, with franchises pulling in significant revenue. Success stories can be deceptively intoxicating, but it’s important to remember that not all franchises are roaring successes.
Whether or not you should buy a franchise is a very personal decision. The best way to come to a solid resolution is to research, research, research. Asking questions beyond the surface, and beyond the glamorous idea of packing in the 9-5 or investing in your retirement. There are very significant issues to contend with before you reach that stage.
Buying a franchise is not as simple as it first appears, and making the wrong decision could be a costly mistake. If you have a lot of capital on the line, it’s wise to reach out to a franchising consultant specialist who can use their industry knowledge and experience to help you find the best and most suitable deal for you.
For more information about the Guerrilla Franchising system for success, let us know by filling out our contact form and providing as much detail as possible so we can help you the best way we can.
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