Buying and setting up a franchise requires a series of important financial and management decisions. Unfortunately, entrepreneurs without experience in the franchise world often make several mistakes along the way that cost them profits or cause franchisor difficulties later on. Here are several of the most common blunders that those new to franchise buying make – and how to avoid them for a successful, profitable experience:
1. Looking Only At Initial Costs:
Initial costs are important. They are the down payment of the franchise, the amount of money that you absolutely have to pay when first starting out. For this reason, this cash amount gets a lot of attention – but many newbies make the mistake of focusing only on the initial costs and their comparative net worth. Wiser entrepreneurs pay just as much attention to the long-term fees and revenue potentials of a franchise to see how much they will be paying five years down the road as well as right now.
2. Asking Other Franchisees Their Opinions:
It seems like good advice on the surface: Surely other franchise owners would have valuable opinions on what works, what doesn’t, and which franchises can be trusted? But this is an error in perception. First, you have no way of judging a franchisee’s attitude – a single bad experience does not mean that a franchise is a poor choice for you personally. Second, all franchise owners have a vested interested in keeping you out of the business – more competition is a bad thing, from their perspective.
3. Forgetting to Market Themselves:
Franchises, despite the Internet portrayal, are not lined up like deli items to pick and choose between. For many franchises, competition to buy their business is fierce. This means that buyers have to market themselves and their skills in order to win a contract. You should focus on your experience, your abilities to grow a business, and your long-term stability. Market yourself well, and you can have your pick of franchises. Otherwise, you will be jostled aside by more ambitious entrepreneurs.
4. Ignoring the Law:
This does not mean diving into anything illegal – it means forgetting to do proper research. New franchise buyers think they can skate by with basic training, but in reality hiring a franchise attorney for a consultation is often invaluable when first starting out. You also need to do a lot of research into your state and local laws to make sure that the franchise of your choice is even feasible – and what codes, insurance laws, certifications, licenses, and approvals you will need along the way. Otherwise your franchise may be in deep trouble before you even open the doors.
5. Not Planning for Expansion:
A single location is a great start, but it is not a great way to make money. The most successful franchise owners always expand into multiple locations or larger businesses with employees who can handle a significant client base. Starting small is fine and usually the only way to enter the market, but you should also plan for eventual expansion and be ready to seize on opportunities when they present themselves. It is never too early to think big – many of your competitors, after all, are already considering expansion themselves, and could be eating up valuable territory.
6. Reading the Contract…Too Late:
The contract holds all the caveats on exit fees, management requirements, limitations when it comes to promotions, and similar terms. Too many buyers do not read these details until they are deep into the negotiation process or have already agreed to a purchase. Expensive problems result, so read your contract as soon as possible, and ask for the details ahead of time so you know what to expect.
SB is a professional blogger that provides tips and information on franchise opportunities and investments. He writes for FranchiseExpo.com, the place to find the best franchise opportunities available.