Ten to One: Eight Questions Everybody Ought to Ask before Buying a Franchise
Every role has criteria that must be met. It helps if a lifeguard can swim, if a milkman can drive, and if a professional singer is able to sing (although that doesn't seem to put some of them off).
The same applies to franchisees. Are you thinking of investing in a franchise? Before you go scrutinising the deals on offer, perhaps you should take a look at this third episode in our series of lists 'Ten to One', and consider analysing yourself a little bit.
1. Can You Follow Instructions?
A franchise offers a much higher chance of success, plus more guidance and support, than going it alone can give. But the compromise is that you have to be willing to follow the operations manual – in fact, you are legally bound to do so by the franchise agreement document. The business model has been perfected through time and experience, and the franchisor is not one to be heavily challenged about it. Well not at the beginning, anyway.
2. Do You Have the Finances?
It is necessary to sit down and calculate the initial investment required (to cover the franchise fee, plus other start-up costs such as property and equipment), as well as the expense of surviving the early non-profit phase (assume it will be at least one year), and a little extra to cover those unexpected setbacks while the business is being established.
Once the calculation is made, you can make a balance sheet of your assets and liquid cash resources. If they are not enough to cover costs, then you must figure out how much money you can afford to borrow. Thankfully banks are often happy to lend to the proven business model that is the franchise, especially if it is a well-known brand. If it's still not going to happen, then you can check out the low cost franchises (available for less than R100 000) on offer here.
3. How About Energy?
While some of us are so efficient we can launch a new business by working eight hours a day, five days a week, the majority of us will need to put a larger amount of time into a new franchise project. Sometimes it is necessary to work late nights and at weekends, particularly at the start. Most franchisees are aged 50 or older, and if you think you might not have the physical strength to run the business for a long enough time to recover your investment, then you may want to consider choosing a franchise that allows you to work part time.
4. …and Mental Strength?
Training and support from the franchisor means that setting up a franchise is so much cosier than starting a small business all by yourself. However, sudden changes, competition, mistakes and other demanding factors are always a possibility, and you need to have the mental strength to deal with the stress and move on.
5. How Does Your Other Half Feel About It?
You setting up a small business will of course have an effect on your family, and it is vital that they understand, and will be able to cope with, the initial loss of family time and money that can occur. They may even be able to help you – when you are not yet making profit, it might be better for your partner to work in a stable job so that the household has a steady source of income.
6. Do You Have Social Skills?
Most types of franchise require an ability to market the business, making promotions through different forms of communication. Customer interaction is usually a daily occurrence, and larger businesses will need you to handle employees.
Too shy for such relations? An internet franchise is often a one-man show that requires little face-to-face interaction. However, even if you are a bit of a recluse, it is still essential that you have the skills to work steadily with your business partner: the franchisor. They will be training you, caring for you, and visiting you to check how things are going (particularly at the beginning).
7. Can You Handle Being Self-Employed?
The chance to 'be your own boss' is always a major selling point when a franchise is being advertised. But there is little point in not having a boss looming in the background if you don't hold the self-discipline to stop procrastinating and get the work done. Dedication is required if the business model's short and long-term goals are to be hit and the franchisor is to be kept happy.
8. Do You Know What Franchising Actually Is?
Talk about saving the most important one for last. It is essential to educate yourself on the structure and terminology of: firstly, franchising in general, and secondly, the individual franchises you are considering. There are ways to find out what is involved, including Discovery Days, talking to other franchisees, going to expos, and making sure you get a full disclosure document when you approach a franchise for information.
Tune in to 'Ten to One' next month to find out what topic the list of seven points is going to cover.