Don’t Get Into Franchising Until you do these Five Things
Don’t get into franchising until you do these five things
Thinking about buying your own franchise? While it can be a hugely rewarding experience, it can also be an expensive, life-changing endeavour and one that you don’t want to wade into on a whim. Here are five important things you won’t want to skip on your journey into franchising.
Ask yourself if you’re definitely suited for the job
First things first, ask yourself if franchising is really for you. It sounds trite but with all the hefty costs involved, it’s a massive decision to take. It’s not recommended to sign an agreement with McDonald’s on a hunch that you may be good at the job. The advantages that come with franchising – like riding on the wave of an already established brand – don’t necessarily mean your outlet will be a success. You have to have the right skills, experience, personality and a passion for the product. Most importantly, you need to enjoy the work to give yourself the best chance of success.
So how can you know you’re suited for the job? While taking one of the many personality tests out there may give you an idea, there’s no replacement for experience. One of the best ways of finding out if franchising is for you is by actually working in a franchise you want to buy. It will tell you if the product or service is for you and something you enjoy selling, and will build some of the skills you’ll need.
According to Forbes, former Auntie Anne’s executive Sean Kelly recommends spending six months working in a franchise before you become a franchisee. The work experience might also put your franchise application in with a better chance. Domino’s, for example, looks favourably on franchise applicants who started out as delivery drivers.
What about the skills you need? The kind of hardwork and dedication Domino’s favours is one of ‘five skills franchisors really want’, according to UK employment agency Reed. This sits alongside energy, excellent conversational and interpersonal skills, creativity and confidence.
McDonald’s says that while its franchisees may come from disparate personal and professional backgrounds, they all share a few qualities like “passion, personality and a love of people”. Fitness franchise Tough Mudder Boot Camp stresses that the successful franchisee is a teamplayer who can adapt well. “Franchise owners know that when there is no such thing as a typical day, being flexible is a must,” it says.
On the more practical end of the franchisee skill spectrum come things like business management, organization and marketing. And while creativity is valued in any business, an ability to follow the tried and tested processes handed over from head office in return for the franchise fee is crucial.
Chew over all the costs
No doubt you’ve already factored in the two obvious costs: the start-up costs and the monthly service fee. The start-up costs include the upfront franchise fee – what you pay to use the brand, operating system, training, suppliers, marketing and equipment, and to receive any training and support on offer.
Then there’s the investment you’ll need to pay for things like construction and rent, furniture and fixtures, equipment and staff. And don’t forget insurance and loan repayment fees if you have financial help. The service or royalty fee is the percentage of your monthly revenue you give over to the boss every month.
But there are not-so-obvious costs to be on the lookout for too. Your bosses may only cover some of your expenses to travel up for training (if any), for example, and head office might want you to do giveaways or special offers when you open. And while the license might grant you access to the franchise’s suppliers, more affordable prospects on the open market are then out of reach.
Forbes urges you to factor in a period of net losses before your business starts taking off (you may have bought a McDonald’s franchise but you still need to alert customers to your presence). It also recommends making sure your business expenses are covered for six months and living expenses for a year.
UK publication What Franchise points out that while good franchisors should be transparent about what’s expected, “it’s up to you to ensure you understand the information provided. If in doubt, ask more questions.”
Do your due diligence
But asking questions doesn’t just apply to the finance side of things. Before you sign any dotted line, you should be gathering as much insight into the franchise and industry as you can. As our website illustrates, there are so many different franchises out there and each comes with a unique set of positives and pitfalls.
While it’s long and complex, the more than 50-page franchise disclosure document (FDD) is your friend. It’s a legal document that a company must give to potential franchisees and contains a treasure trove of information about the brand. This includes things like litigation, bankruptcy filings, the franchisee’s obligations, the training on offer, and the obvious and not-so-obvious costs they’ll charge you.
As they’re an industry standard, they’re all laid out in the same format, which means you can easily find similar information across different companies. Just be aware that franchisors are not required by law to disclose financial information, but good franchisors usually will.
We have a huge database of FDDs on our website and it’s worth checking out Forbes’ handy guide on how to read one. Beyond the FDD, do you own research into how successful the brand is and the potential demand for its product or service in your area.
Be a sponge
Read as many trade publications and listen to as many podcasts as you can before there’s no turning back – both about your niche industry, the franchising industry, and the broader economic outlook. Immersing yourself in all things franchising will help you stay on the pulse of emerging trends and challenges. Make it part of your daily routine to read at least three articles first thing in the morning. Check out publications like Franchise Times and Franchising. For all the scandal and issues in the franchising industry, keep an eye on the Unhappy Franchisee. And don’t forget the bigger financial newspapers like Wall Street Journal and Bloomberg for the wider view.
We also highly recommend sitting down with a couple of current franchisees – successful and unsuccessful alike. Reach out politely, ask if you can have 15-30 minutes of their time, and maybe even offer to buy them coffee and meet them in person. Ask them to tell you about the biggest lessons they’ve learned and how they overcame them, what they would change if they could start again, and of course what they find the most rewarding. If they’re worried about telling you things that may get them in trouble, reassure them that you’re just there to learn.
Weighing up all the pros and cons
Lastly, once you’ve done all your homework, draw up all the pros and cons. On the pros side, list the things in your favor like being part of an already successful brand and a healthy industry, getting good support and training, working in an exciting environment, and what makes you suited to the job. On the cons side, write up the costs, how long it’s going to take to turn a profit, how it could hurt your personal, and the limits on your entrepreneurial freedom if that’s a concern. And if it still feels right to go into franchising, what’s holding you back?