Business
Buying A Franchise – It’s Not
The Easy Road
How to avoid a costly mistake
when buying a franchise
u A FRANCHISE IS JUST LIKE ANY OTHER BUSINESS – it’s important to remember that. It’s easy to make assumptions such as ‘it’s
a proven system, so I’ll be successful’. The reality is, however, that you
need to work the business just like any other. Three key differences with
a franchise, when compared to a non-franchise business are:
1. Some things have been figured out for you
2. There will be some extra support from the franchisor
3. The brand may already be well established
Doing your due diligence is essential, but remember, there are two areas
you need to focus on.
1. The franchise model – how the system works, who the franchisor is
and how well it’s doing as a whole?
2. YOU – are you a fit for this, can you see yourself being successful doing this, is a business something you can handle?
by Richard Giannini,
Executive Director in
Mobile App City
company that owns the entire concept, and the ‘franchisee’ is the one
that owns a franchise unit.
1. Who are you getting into business with?
The franchisor will essentially become your business partner, so who
are the people involved? Can you work with them? What is their track
record in business? Visit the franchisor’s website and use internet
search engines, as well as social media to find out more about the
company.
2. What are the key trends within the industry?
You have to look at the macro or micro trends that might affect
the business over the next five to 15 years. The franchise might
be successful now, but what about the future? Are you getting
into a printing business just as people are using printers less?
Look for independent industry reports for more information.
3. Who is your target audience?
If the franchise targets a niche market, such as day care or certain ethnic foods, investigate whether the area’s population has
that audience. Some franchise concepts work well in a certain
city, state or area, but the same concept may not work well in
your area.
4. What are the projected costs for opening
the franchise?
This second point is crucial because if you can’t answer yes to these
questions, it doesn’t matter how good the franchise is – you won’t succeed, or will struggle at best.
Here are some important questions to consider when it comes to investigating the franchise model. Note that the ‘franchisor’ refers to the
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www.smpmagazine.com.au | Autumn 2016
Though it may seem obvious, it is important to factor in personal expenses. The Franchise Disclosure Document provided by the
franchisor forces the company to legally disclose the business
costs and even give a range for certain expenses. Look closely
through this, and if you are not good with numbers, this is a
skill you need to learn. To be in business, you MUST know your
numbers. If necessary, use a professional to help you in the beginning and explain what you are unclear about. Make sure you ask
them what the potential downsides are.
5. What is the franchisor’s relationship with the current
franchisees, and has there been any history of litigation?