9 questions you should ask before buying a small franchise
Franchising is an “easy and fast” way for starting up you “own” business. Here are to mention but a few of the advantages you get from choosing a franchise:
- Proven Concept. The U.S. Commerce Department estimates that 95% of franchises succeed; only 25-35% of independent businesses succeed. Why this difference? Since a franchise is usually a duplicate of an already successful business, the chances of success are higher than an ordinary startup.
- Support. As the concept has already proven its worth, the franchisor has a good idea of what works and what don’t.
- Financing. Banks are sometimes easier to persuade to lend money to a concept that has been proven to work.
- Known suppliers. The relationship to suppliers has already been established.
Despite all the advantages you can find in buying a franchise, you need to be careful and ask the franchisor the right questions before investing your money in a small franchise. Here is a list of important questions you should consider.
What support will be provided?
As mentioned one of the advantages of buying a franchise is that you can get support and knowledge about what works and what doesn’t for the particular industry that the franchise is in. The learning curve will be steep in the beginning, where you will need a lot of support to get started. But you will also need to get some support further down the road, when you come across other obstacles. Therefore you should assure yourself that the franchisor has a good support program.
Are there any territorial restrictions?
It is very important that you know what territory or district you are suppose to cover with your franchise. You don’t want to trespass into areas belonging to other franchisees or get at district that you feel is too big for you.
What product suppliers exist?
An advantage of buying a franchise is that there most often will be established product supplier agreements. Such agreements can sometimes result in purchasing discounts. Maybe you are allowed to use a local supplier to “fill in” between orders if you are low on stock, but mostly you will have to use a pre-established vendor. All these circumstances you need to know before you go ahead and buy the franchise.
The time you are required to spend on the franchise.
It is essential to get a mutual agreement of the time that you have to spend on the franchise. If you want to run the franchise as a part time project and the franchisor wants a full time commitment there is a good chance that the execution and implementation of the franchise won’t happen according to the franchisors plan.
What is the brand and recognition of the franchise?
The better the target customers know the brand of your franchise, the easier the marketing will be for you. So before you buy a franchise with a low brand recognition, you should ask your self how much time an effort you are willing to lay for getting you franchise known, while still paying royalties and franchise fees. When buying a franchise with no brand recognition it will almost, in a marketing perspective, be as if you were to start up you own business idea from scratch.
What is the success rate of the franchise?
Before buying a franchise it is important to know the average success rate of the franchise. If the franchisor avoids this question, you should always be suspicious; chances are that they are not telling you the whole story. One reason for buying a franchise is that is should be significantly easier to succeed, then if you should start up on you own business. A Franchisor that runs his franchise well should in fact be proud of a high success rate. Never the less you should always remember that you are the owner of the franchise and that it is up to you to lay the effort that will make it a success.
Co-promotion / help in marketing
One of the tasks you have as a franchisee is to market your franchise. The franchisor cannot be expected to do all the marketing for you. Never the less you should ask how the brand of the franchise is promoted in your area. If you are paying marketing fees to the franchisor you should also ask how theses fees benefit you. Make sure the fees you pay help promote the franchise in your district or territory.
What are you getting for your money?
Before you decide to go ahead and buy a franchise you need to consider, exactly what you are buying.
- Are you getting a well-recognized brand?
- Are you getting help with you marketing?
- Are you getting a well-organized support system?
Some businesses decide to franchise before their idea has matured. For you this means that you will have to do a lot of entrepreneurial tasks yourself. If this is what you want and expect it is no problem, but if you expect a business with a well-defined concept and strategy you should keep looking.
Do you see the small franchise as a good match?
One of the most important things to ask you-self before buying a franchise is if you and the franchise is a good match.
- Do you see your-self in the industry of the franchise?
- Is it possible to achieve you goals with the franchise?
- Are you comfortably with the things the franchisor offers?
The above is no franchise manual but hopefully it can help you on your way if you are considering investing in a franchise.
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