As an upcoming franchisee, you need to understand that it is not guaranteed that every franchise will thrive. There are several mistakes or errors made by franchisors or franchisees that affect the franchise and subsequently cause them to fail. A franchise does not just fail at once; it does so over some time. If you want to pick up a franchise, there are a number of things you need to take into consideration before doing so. The success and failure of a particular franchise have always been determined by the decisions made by the franchisors, the franchisees, and the office support staff.
From the viewpoint of a franchisor, he or she owns the larger company. Even though there are agreements and resolutions between the franchisor and the franchisee, the franchisor takes the major decisions binding the investment or company.
As a franchisee, how do you decipher a successful franchise from a failing one? You can make do with these few tips;
- You should understand that when a business does not provide the required or adequate training for its operations and promotions, it will inevitably affect the franchisee negatively. Such a franchise is a no-go area. You need to be able to see into any potential franchise that you will be involved in. This will save you from a lot of mistakes and failures.
- You should also be able to measure the financial strength of a potential franchise before you delve into it. A business that is not well financially grounded could enter into bankruptcy and, as such, fail. When a business goes bankrupt, it certainly has adverse effects on its operations, its personnel, and also its franchise in other countries, regions, or states.
- Although an idea becomes a business through adequate planning, not all companies are adequately planned for. It is imperative for the franchisee to introduce his or her business plans to the franchisor. This is for the franchisor to see and monitor if the franchisee is working according to the business plan. The truth is, even if you have a million-dollar plan for your franchise, working with a franchisor who does not have a plan could be killing. You need to understand the plan of the business first, before going into a franchise. A business could be developed under a short-term plan or a long-term plan. It is advisable to be attached to a business with a long-term plan and not just a business that only thinks of what to do next.
- It is very good to plan big. Yes. Very true. But beware of companies and businesses that set unrealistic targets for themselves. You can come across businesses that dream of having a branch across every street in the world. You and I know that is not realistic. In a bid to achieve all these unrealistic aims, such businesses go out of their way to overstretch their franchisees, and this plainly tells you that such a company is heading for a fall.
Now, you can distinguish between a successful business and a failing one. You know when a company is growing and when it is heading for a fall. So, how do you avoid picking up a failing franchise?
There are several things to note to go for the right franchise. All these are listed below;
- First, if you are new to franchising, get someone to explain what it entails to you. It is advisable to get a lawyer, usually referred to as a franchise attorney. These people are professionals who understand the development of a business and how an agreement to develop a franchise is done. They specialize in handling franchise contracts and negotiating the terms and conditions attached to each contract. Without them, you will most likely find yourself making the wrong deal under unpalatable circumstances. They could help you negotiate the terms and conditions such that your intending franchisor does not demand too much from you. They also serve as a witness and a third party to the agreement between you (the franchisee) and the franchisor.
- Secondly, you have to properly evaluate what is called the Franchise Disclosure Document (FDD). As earlier stated, this should be done with the help of your franchise attorney. The FDD is a legal document that contains all essential information about franchises. This information is what every intending franchisee needs to know about the franchise he or she is about to invest in. It also contains information that binds the franchisor in the business. In the United States (US), for example, the FDD is sub-divided into about twenty-three (23) different sections that the franchisee goes through and signs. In order, the FDD is arranged thus:
- The franchisor
- Business Experience
- Litigation
- Bankruptcy
- Initial fees
- Other fees
- Estimated Initial Investment
- Restrictions
- Franchisee obligations
- Financing
- Franchisor’s assistance
- Territory
- Trademarks
- Patents and copyrights
- Obligation to participate in the actual operation of the franchise
- Restrictions on what the franchisee should sell
- Renewals, terminations, transfer and resolution of disputes
- Public figures
- Financial performance representation
- Outlets and franchisee’s information
- Financial statements
- Contracts
- Receipts
- It is also very important to go into a franchise with an already-developed business. As a franchisee, don’t dream of starting from scratch with an upcoming company. You need to know which business has stood the test of time. Watch out for businesses that have survived recession periods and have stood out during trying times. Such businesses tend to thrive. Having a franchise with a developed business will also help you plan better, and it will also boost you financially.
- It is safe to go for an in-vogue business. Do not try to revive enterprises that have been rejected by customers. You might not like the effects of the outcome on your franchise.
- It is also of utmost importance to have a few owner-friends and other franchisees who can advise you from time to time. Discuss the validity of certain franchises with them, even before going into it. This helps because people who have stayed long in the business understand the nitty-gritty of it all, and they would help as your advisers.
- Also, you have to watch for the financial health of the business you want to sign for. You can have a view of the net worth of the business, the assets, and the liabilities of such potential franchises from the corporate balance sheet. The balance sheet of the business allows you to grade its financial depth. From these details, you can decipher which business is running into bankruptcy and which one will thrive.
- In addition, you can pick a franchise that has a good location. For example, if the business has its headquarters located around the metropolis or around a particular living quarter, it will most likely thrive. Also, when you sign a franchise with such businesses, there will be a high chance that you will get a good location for your franchise. Before moving to an area, you need to do a background check. You need to know if other businesses have thrived there. If your business involves selling bikinis and swimsuits, you can be sure to avoid the Middle East, because a lot of these things are prohibited there. Such a franchise will not thrive.
- Also, be careful of the risks you take. Although taking risks are inevitable in any business, do not make the mistake of using your instincts to assume the stability of any business. Make your own findings and be sure of what you are going into before you do so. The brand name may be eye-catching, but that doesn’t mean the business is not nose-diving.
Finally, only an ignorance franchisee will pick a failing franchise. Franchising is an exciting aspect of business in general. Every business wants to spread its tentacles as far and wide as possible, and they require franchisees to do this. If you are aware of all these points, you are bound to go for the best.
