What franchisees should do before choosing a brand:
- Compare different franchises within your chosen sector to assess the level of support given.
- Read franchise trade magazines, newspapers, websites, and attend franchising exhibitions.
- Seek the advice and opinions of existing franchisees.
- Understand the cashflows of the business model you are investing into.
- Do some local market research to gauge demand for the products and services, to test the reputation of the franchising companies, and to test their claims about pricing and any other relevant business claims or information given.
- Become an expert before signing the papers, and not wait to learn about the 'unknowns' after signing the contract and parting with their cash.
Buying a new or existing franchise?
Franchised businesses are considered to have a higher chance of survival due to the duplication of successful operating models, and the training and support provided by reputable established franchisors. After doing intensive research on the franchise brand that appeals to you the most and receiving approval from the franchisor to become a prospective franchisee, you may find yourself being pulled in two directions. On the one side is a brand-new store. On the other, an established store that looks solid, with not much for you to do, but turn a key in the lock. What choice should you make?
When opting for an existing store, there are a few things to consider:
First and foremost, the driving force behind the owners’ intention to sell must be understood.
Is it an established store supported by a loyal customer base, showing good financial trading results? Or is it a bargain that will require a lot of attention to restore its image before generating a desired level of profit? Perhaps there is a looming revamp requirement that necessitates an additional capital outlay?
Capital equipment used in the production of income can be expensive. Ask about the life span of the assets and inspect its condition. If a revamp is required to update the image of the store, what will it entail and what will the associated costs be? Another discussion to have relates to human capital. People play a major role in any business. Will they stay on, or will you have to appoint and train new staff?
Neglecting to pay attention to the finer detail, will be the opportunity cost of running a successful franchise business. By asking the right questions and analysing the business’ financial performance, you will be able to avoid any potential pitfalls and negotiate a fair deal for yourself.
When opting for a new store:
New stores are often cheaper than existing well-run businesses as it comes without the obligation to pay for goodwill – or the value of a business’ reputation – in monetary terms. Setting up a store and forming a loyal customer base is critical to its future success, even if it’s part of an established brand with a proven track record. Ways to achieve this objective include selecting a prime location, providing customers with a positive experience, making good on promises and providing good quality products or services.
In both cases, new or existing, take note of the terms and conditions in the lease agreement, which is a legally binding contract. Meet with the landlord and get a sense of the support you will have as a ‘soon-to-be tenant. A reliable landlord is worth their weight in gold. Take time to foster a good working relationship. Ultimately, the decision to buy a new or existing franchise store comes down to a franchisee’s personality, preferences and risk threshold. In general, proven franchise stores are a safer investment, but, if the idea of piecing things together will energise the franchisee, then a new franchise store might be a better option.