Franchising is one of the best ways to get into a business. But with hundreds of franchisors in the market, picking the right one can be overwhelming. Below are some guidelines you may want to consider when buying a suitable franchise:
Know the total costs
Initial franchising costs can range from $10,000 to $100,000, depending on your industry segment. For example, a restaurant franchise opportunity would require more labor, equipment, and inventory than a water refilling station.
As with any business, you have to spend money to make money. That said, be smart and stick to what you can afford. Franchising comes with many expenditures that are not directly stated in many franchising marketing brochures. These include rental deposits, overhead charges, working capital, and legal fees, among others. As such, ensure your franchisor provides you with a detailed list of financial requirements before settling on any agreements.
What’s more, franchises take time to be profitable, sometimes even later than the optimistic prediction. During this period, ensure you have sufficient capital to balance your losses with ongoing operating expenses like rentals, labor, taxes, and energy bills. Setting up an emergency fund will help you survive should unexpected hurdles arise.
Do not invest in fads
Like fashion, business is subject to fads that come and go all the time.
Companies based on fads tend to promise instant returns in a few months. Naturally, it can be tempting to invest while market demand is still high. However, there’s a risk that by the time you operate, these fads may be on their way out. When this happens, you lose all potential gains in an instant. You may never even recover your investment.
That said, investing in a fad may bring you lots of revenue if the timing is right. Still, it’s risky business. Instead of focusing on trends, select a franchise that’s more likely to last for many years. Avoiding the fad mentality will give you peace of mind and more opportunities for growth.
Check the credibility of the management
Franchising offers entrepreneurs access to instant brand recognition and expert assistance on running the business. However, it would be impossible to enjoy these benefits if neophytes are running the team.
Avoid a poorly managed franchise by conducting a background check on the competence and integrity of the parent company. Beware of companies involved in unethical matters such as dishonesty, fraud, and other malicious activity. Problematic franchisors may suggest you talk to only his selected franchises. Instead, get more unbiased views by communicating with randomly selected franchisees. Ask questions about the track record of the company. How many franchisees do they have? How long have they been operating? What is their relationship with franchisees? Chances are, poor management will likely reflect on its franchise branches, too.
Be wary of pressure tactics
The best companies have a long waiting list of franchise applicants. Aggressive franchisors who are more interested in instant profits than screening qualified applicants should be avoided at all costs. Be extra careful if you are offered unbelievably large discounts. Remember, a good business venture takes a significant amount of time and research.
When starting a new venture, it’s helpful to have a clear vision of what you want to achieve. Partnering with even the most profitable companies won’t be rewarding if it doesn’t match your objectives and interests. Knowing your long-term goals will help you realize the perfect franchise model for you.