Compared to setting up a new brand and business from scratch, franchising saves much time and effort because the franchisor has already figured out how to make the business profitable so someone taking up the franchise concept could potentially enjoy higher chances of success by implementing the same model.
But franchising isn’t simply about buying into a successful model. Instead, it’s likened to a partnership that requires both trust and commitment, and should result in aligned payoffs for both franchisor and franchisee. Not that being profitable isn’t important, but simply basing evaluations on financial aspects would see prospective franchisees overlook many warning signs at the start. If franchising is the path you choose, here are 4 common mistakes prospective franchisees normally make when searching for that perfect franchise opportunity.
1. Being Lazy When Researching
Don’t pass over a franchise without learning what daily operations entail. It’s important to find a franchise that meets your financial objectives but perhaps more important to find one that suits your lifestyle and skills. Take your time and be sure you fully understand the franchise opportunity being offered and the management behind. The prospect of making money always gets anyone salivating but keep an open mind, don’t just go for the first carrot you see and rush in emotionally.
2. Neglecting The Franchise Team
Businesses do not run by itself, they are run by people. A great product or system could be hampered by incompetent or unscrupulous management and it is precisely this fact that it’s critically important to know the people behind the business. Find out the core values of the management and determine if it’s in line with your own philosophies and beliefs. While you can’t be sure if its a one hit wonder or any guarantee of success, at least you can better understand the franchise organization’s management, experience and quality of leadership they bring.
3. Underestimating On-going Payments
Franchise payments aren’t a one-time deal. After investing into the upfront franchise fee and franchise unit setup costs, there’re also periodic payment in the form of royalties to be submitted to the franchisor, which typically will be timed on a monthly basis. When doing your own calculations, be sure to include royalty expenses to determine whether a particular franchise concept can provide you with your desired financial objectives.
4. Forgetting About Exit Strategies
No one goes into business expecting to fail or stop operating after a period of time, but that doesn’t mean you don’t have to prepare for it. Take a look at the termination clause in your franchise agreement and see what repercussions hold if you decide to exit early. So if things do go south, at least you know there are options available to protect yourself.