Here are things you need to consider:
- Learn the necessary parameters
- Do research and due diligence
- Inspect fads before diving in
- Be cautious of sales
- Investigate startups first
- Satisfaction matters
- Inspect the franchise disclosure document
- Be realistic about returns
Learn the necessary parameters
Understand that no matter how big or popular, franchisors cannot fully guarantee the success of a franchise. There will be less chances of achieving success if the franchisee doesn’t like the franchise or does not have the proper skill set to run the said franchise.
Franchisees should themselves and their capabilities, learn skills relevant to their franchise, and seek expert advice before finally entering into a franchise agreement.
Do research and due diligence
Franchisees must be prepared to do due diligence as part of running a franchise business. This will help put themselves in the best position to successfully run their franchise business and maximise its potential for profit. It also means that they have to evaluate the risks involved in buying and running a franchise and taking into account the overall business situation.
However, this doesn’t mean that all risks need to be avoided. Taking on the necessary risks to maximise the franchise’s financial performance is also important. This is why it is important to evaluate all risks and determine which ones must be avoided and which ones will benefit the franchisee.
Simply put, franchisees need to do their homework before entering into a franchise agreement.
Inspect fads before diving in
Fads may or may not guarantee the success of the franchise. Be cautious with franchises that are built around very unique products or services with too many duplicates or copycats. Avoid these kinds of franchises as much as possible.
Be cautious of sales
Franchises that have too many units up for grabs could mean that the franchisor is facing business difficulties.
It is best to first check reliable websites listing franchises for sales. Check whether current franchisees are only trying to unload their problematic franchise units. A good indicator of trouble usually involves too many franchise units for sale at bargain prices.
Investigate startups first
Start-ups are great because they are innovative trailblazers. Joining a new franchise always involves risks—and in today’s economy, many of these newcomers are likely to disappear before they even begin to gain traction.
To avoid unsure franchises, consider only those franchisors that have been in the business for at least five years and have at least 25 open franchise units.
Franchisors with satisfied franchisees also indicate great potential for success. Search for reliable websites that list franchisors with the happiest franchisees.
However, happiness doesn’t necessarily equate to money. Franchisees must make sure that a franchisor doesn’t only satisfy the need for return of investments but also attends to other necessary expectations.
Inspect the franchise disclosure document
Study the franchise disclosure document. This document is provided by the prospective franchisor.
Pay close attention to details in a franchise disclosure document, such as:
- franchisors’ pending lawsuits (if any),
- list of franchise units and how many of these units have closed in the past three to five years,
- franchisor’s financial performance representations, and
- investment details into the business.
Be realistic about returns
It is important to remind yourself,as a franchisee, that a return on investment (ROI) can’t happen right away. Gaining profit takes time, and ensuring the sustainability of the profit takes even longer. This is why franchisors need to be realistic about your ROI expectations from their new franchise venture.
It usually takes three to four years to gain profits in a franchise. Any longer than that may mean something could be wrong within the franchise. Be sure to follow the system and take calculated risks.
Following the system means adopting a tried and tested operational course of action and taking calculated risks.Doing so will more likely ensure the success of the franchise.
In the end, more than the popularity of the franchisor or the initial franchise investment, what will define the success of a business is the amount of preparation made before undertaking it and the calculated risks taken to make sure the franchise gains traction and maintains a satisfactory level of success.