When you buy a franchise, you associate yourself with a brand and get instant name recognition, you get training and support from your franchisor that can help you succeed in your endeavour. But purchasing a franchise is like any other investment – there’s no guarantee of success.
You may get an established name and a proven business plan, but your success is ultimately up to you. So, to help you make a decision, here are 10 tips that you must consider, before you invest in a particular franchise system:
- Franchise Fee: Ask the franchisor what the initial franchise fee covers.
TIP: Some Franchisors have hidden charges for training, prices for using the software, initial advertising expense, renewal, etc. – be clear and aware of what you are paying for!
- Setup Costs: Ask the franchisor if he can share the breakup of any “kit”, equipment or setup material that you have to pay for. To get an idea of what you will get for your money, you should visit a nearby franchisee unit and you will get a clearer picture.
TIP: Some Franchisors discount the franchise fees and make money from your setup investment and the franchisees later realize that they invested in an unethical brand and an empty franchise unit since they hardly got anything for their initial setup costs.
- Investment Requirement & Capability: Remember that you will not start making money from the 1st day, so have some additional capital over and beyond what the franchisor tells you, as operating money, till the time you break even.
TIP: Some Franchisors under quote the initial investment to attract more franchisees and such franchisees tend to get alarmed later when they realise that the “minimum” investment is much more than what the franchisor committed.
- Ongoing franchise fee: Try bargaining on the ongoing royalties or franchise fee.
TIP: If they do bargain, we’d suggest you to Stay Away! With different franchise fees committed to different franchisees, such franchisors will never allow one franchisee to meet another. Thereby depriving you of a very strong support system in any franchise network – other franchisees in the network.
- Match your interests: Establish your capabilities and pursuits and complement them to an appropriate franchise. The kind of franchise you choose should be one that’s in line with your passion and interests.
TIP: Think about the reasons for setting up your own franchise beyond the money – lifestyle, respect, working hours, etc. In short, imagine your day as a franchisee and see if it excites you. You won’t achieve success from any franchise business model that you are less than enthusiastic about. Confucius – The Chinese Philosopher said: “Choose a job you love, and you will never have to work a day in your life.”
- Support: Most franchisors’ brochure say “100% day to day support” – what exactly does that mean?
TIP: Be clear on how the franchisor will support you – what kind of assistance will you get in recruitments? Will you get professional support to design and setup your unit? Will you get training at the head office so you can spend time with the corporates? Will there be regular trainings for you and your staff? Is there a software to manage your operations? Will you get a website? Is there a provision for customised advertising designs and videos?
- Speak to a range of franchisees: Just like there are unscrupulous franchisors – there are unethical franchisees too. So when they don’t pay their due share to the franchisor, such franchisees will bad mouth the company. If a franchisee talks ill about the company – you can ask a simple question like, are you paying the franchise fee? Why are you still carrying on if they are no good? So speak to different franchisees of the different brands you are considering, visit them if possible and get a clear idea of what to expect as a franchisee.
TIP: A very effective indicator of the satisfaction of the franchisees can be judged by asking them how long they have been associated with the brand. Also, if a majority of franchisees are overall satisfied, then you can be confident that you are making the right choice.
- Years of Experience: Every year, a number of franchisors enter the industry and when they can’t invest like their competition and support their franchisees or deliver on their promises, the franchisees stop paying the fee to the franchisor and consequently, the brand closes down.
TIP: Brands that have been carrying out franchise operations for long must be doing something right. It would be a safer option, to partner with someone who has the experience, rather than someone who is offering the biggest discounts.
- Management: A franchise system which is owned & managed by an experienced team is better than a franchise headed by a “CEO”. The CEO and the Senior Management Team will keep on changing and the newer staff will try and change things around. Since a lot of commitments in India are done verbally, you can expect an ethical franchisor to honour them. Moreover, “CEO” management most likely will not have any ground level experience of running a unit and even the senior team may not have solutions to any uncommon issues you may be face.
TIP: Research about the background of the franchise system’s management. Listen to their talks on YouTube. Do they have a reputable presence in the industry, the franchise sector? Remember, the quality of your unit will be as high as the quality of the management team of the franchise system
- You still have to work hard: A common misconception about franchise ownership is that hard, backbreaking work is already a thing of the past. You may be your own boss and you get to run things the way you want to, but as Spider-Man once said, “With great power, comes great responsibility”.
TIP: Being a franchisee does not mean that you can invest and then just sit back. It means you are not alone in doing business – you have mentors, guides and a proven system which makes things easier for you, your customers recognise that you have a “branded” offering and thereby they trust you more. But that does not mean that you need not work hard. Your success will be a direct result of your efforts combined with your franchisor’s support and expertise.
Thousands of new entrepreneurs are benefiting from what is perhaps the most successful business models worldwide. However, keeping these tips in mind before choosing any franchise will help you have a smooth sailing and a successful career as a franchisee.