People buying into a franchise are often fulfilling a dream to be their own boss. Franchising can seem like an easy way to get into business however there are things that require careful consideration.
Ten things to consider before buying a franchise business
You are not your own boss
Some people enter franchising because they like the concept of being their own boss. All franchisees within a system will be accountable to the franchisor who typically has the right to ask what is going on in the business. If you are the type of person who wants to run your own business and do it your own way you may want to reconsider a franchise.
It is hard work
Being a franchise business owner is no different from being an independent small business owner. Whilst you receive some assistance from the franchisor, operating a franchised business can be tough. Running a franchise will require you to work the same long hours you would work if you buy an independent business.
The Franchisor won’t do the work for you
A lot of franchisees expect too much from the franchisor and don’t realise how much of the running of the business is left to them. Whilst you use the system and the franchisor provides training and procedures you are responsible for staff, local area marketing, reporting and paying the bills.
Some franchisors may negotiate the rent for a franchisee however services such as electricity, gas, phone, waste and other utilities have to be arranged and managed by the franchisee. Whilst the franchisor will take care of national marketing and promotions, you will be required to spend significant time on local area marketing at your expense.
You are not buying a business
When you buy a franchise you are not buying a business in perpetuity. You are buying the right to use the franchise name and system for a specific period (say 5 or 10 years). At the expiration of the period you may be required to purchase a franchise again, pay a renewal fee or in some cases the franchisor may not be prepared to offer you a further franchise term and the business will come to an end.
Ensure you know the total cost
People who consider the cost of a franchise calculate the franchise fee and the shop fit costs but often overlook other costs such as solicitor’s and accountant’s fees and how much working capital they will need to buy stock and support themselves during the initial stages of the business.
Demands from the Franchisor
Have a solicitor review your franchise agreement carefully to ensure you are aware of all of the demands a franchisor can make of you. Franchising requires a uniform standard which often means the franchisor can require you to undertake further training, refresh your business premises or vary particular products all at your expense.
There can be a lot of paperwork
You have to be organised because there can be a lot of paperwork in running a franchise. Franchisees have a lot of obligations, including reporting trading and business metrics to the franchisor.
Check for undisclosed commissions
Some franchisors take undisclosed commissions from suppliers when franchisees purchase stock from the supplier. Such practices are not uncommon and you should enquire with the franchisor as to whether it receives commissions.
You may not make profit straight away
A franchise business is not a licence to print money. You should not be under the illusion that because you are buying a franchise it will be successful or profitable. You should have a business plan and be realistic as to your expectations. Don’t confuse cash flow with profit as there are a lot of expenses to be paid out of revenue each week, reducing your profit.
You may not receive an exclusive territory
You should check to see if you receive an exclusive territory which will prevent the franchisor from opening stores close to your business. Some franchisors do not offer an exclusive territory and the location of new stores is discretionary.
If you require any assistance with your existing franchised business or buying a new or existing franchise please contact us and discuss with a member of our commercial team.