Across the UK, Europe and further afield franchising is booming. In even the smallest of towns, chances are you’ll find a Subway, Days Inn or Anytime Fitness.
The appeal of franchising is obvious. You’re buying into an established brand, with an established model that’s proven to generate a strong return on investment…or at least you should be.
Over the years, I’ve met many franchise owners, most of whom I’m glad to say have been very successful. Sadly that’s not the case for everyone. There are many pitfalls to franchising, which can be easily circumvented if you know what to look for. Here are five of the most common, easily avoidable mistakes new franchisees make:
- They buy into ‘the next big thing’
While fitness franchises are all the rage at the moment, the reality is that only a small handful of those brands will become a real success. The rest will at best keep chugging along and at worst fail, dragging those who hopped on board down with them.
When identifying a franchise, look for one with some history. If they’ve been around eight years or more, it means they’ve come through the global economic downturn, which is a very positive sign.
- They want to be their own boss
If you’re looking for the freedom to do what you want, when you want and how you want, then it’s likely franchising isn’t for you.
That said, all franchises are different and, depending on the franchise you buy into, will allow varying levels of autonomy. Just remember that those who want to see you succeed are the ones that value uniformity and consistency from their franchisees.
- PR is great, but it’s the bottom line that matters
This brand presence is great and shouldn’t be undervalued BUT the bottom line is what really matters. If you like a brand and it’s attracting a lot of media attention, it’s worth enquiring about. Just make sure the numbers stack up, and it’s a viable business that has the potential to deliver a good yield on your investment.
- They don’t speak to existing and past franchisees
One of the best ways to find out about how a franchise really works is to speak to existing and past franchisees, who can share their experience – be it positive or negative – in an honest and frank manner.
Strangely, very few budding franchisees do this. If you’re thinking of buying a franchise, ask the franchise owner or area developer to connect you with some of their existing and past franchisees. Alarm bells should ring if they’re unwilling to do this.
When you do speak to them, ask the hard questions:
- How is business going?
- What sort of revenue are you generating?
- How supportive is the franchise?
- Does the franchise provide adequate training?
- What do you like/ dislike most about the franchise?
- What’s been key to your success?
- They fail to budget accordingly
Too many new franchisees don’t factor this. They budget for the franchise fee, perhaps some marketing and any other initial costs they may incur, but neglect to set aside enough money to cover them through the first few lean months.
Unfortunately, they quickly run low on cash, become disillusioned and end up shutting shop, without ever giving the franchise the time it needed to gain a foothold.
To avoid this, add up all the costs associated with setting up the franchise. Then look at your personal expenses and identify how much you need to live on per month. If you don’t have the finances to cover yourself for at least six months then you may want to hold off on investing.
By David Banfield, president of The Interface Financial Group (IFG)