Thinking about buying a franchise business?

Written on the 15th of June 2010 by Philip Ciniglio

If you are thinking about buying a franchise, Don’t, unless you follow these basic steps to check out the business opportunity thoroughly! Read this article to learn about the 20 successful habits for a franchisee!

This might well be the biggest decision of your working life. You had better get it right!

But do not try and make the decision alone, there are experienced professionals that can assist you. Make sure that whomever you choose, whether a Lawyer, Accountant or Business Adviser, has strong experience in the franchise sector.

Franchising can be a fantastic lifestyle for you and your family but be aware there are no guarantees. Around the world, statistics show that it is much safer to be part of a reputable franchise company than to go it alone. Warning! That does not mean that you will be certain of success. Statistics also tell us that there are a percentage of franchisees that struggle and a small percentage that fail. (The statistics are based upon benchmarked franchise companies undertaken by Market Minds Pty Ltd)

By doing your homework properly you will minimize your risk of failure, in fact you may find that the opportunity that you are looking at does not necessarily suit you, but another may.

So how do you go about doing your home work, or better known as “due diligence”?

Well firstly you should clearly understand that the 3 most common reasons for franchise business failure are:

1. Not seeking advice
2. Lack of planning
3. Inadequate funding

1. Seek and pay for advice. This is the thing that most people avoid because of cost but in fact it could save you a lot of money in the long run.

a. LAWYER. You will definitely need a Lawyer to look over the legal documents, but if you choose a highly experienced franchise Lawyer then you will be in much safer hands and they can offer you advice based on their experience within the franchise sector.

b. ACCOUNTANT. You should use an accountant to make sure that you are going to set up the best company structure for tax reasons and also verify your financial assessments. Once again an experienced franchise accountant will be more knowledgeable within that area.

c. BUSINESS ADVISER, The most underrated of all and the one that can assist with your commercial decisions as well as help you with planning, budgeting, sales, customer service and marketing.

2. Write a business plan.

This is critical, along with your financial plan. If you are not experienced in this area (and many people are not!) then seek help to do this task but make sure that the help provided will teach you how to do it yourself and also to fully understand the process. If you do not understand the planning of your business you leave yourself wide open to failure.

3. Make sure that you have enough cash.

To operate any business it is important to understand the cash-flow, not just enough cash to purchase the business but enough to cover your cash-flow for the first twelve months (or longer in some cases). Cash-flow is different to you profit and loss and it is critical to understand how your cash-flow will work, especially in the first twelve months. Once again seek advice from an experienced franchise business adviser.

When you decide to take the step into buying a franchise then consider the following:

You must operate your franchise business as if you were on your own, that way you will leverage from all that is provided by joining a franchised organisation and it will be the cream.

Some of the benefits of joining a franchised network are:

• The brand name and its reputation
• Established business methods
• A proven product or service
• Site selection and location
• Startup and on-going training
• Opening and launch assistance
• Group purchasing benefits
• Reduced cost of national and regional advertising
• Ongoing product research and development

Are you ready to take the calculated risk? If you are, then it is important to go into the partnership with the right attitude, here are some tips to take into consideration during your franchise partnership:

20 Successful Habits for a Franchisee

1. Treat your business relationship with the Franchisor as a partnership
2. Create a Business Plan or get help
3. Embrace field visits
4. Treat Fees like a religion
5. Embrace the system
6. Comply with the operational procedures
7. Share ideas with your peers
8. Build good relations with the Franchise National Office.
9. Avoid conflict where ever possible
10. It’s your business, take the initiative and don’t wait for help
11. Seek advice from your franchisor only when really necessary
12. Local Area Marketing should be a daily thought
13. Do not confuse your personal expenses with your business profitability.
14. Watch your cash-flow weekly
15. Sell the Brand daily
16. Be a team player
17. Identify and be aware of competition but don’t let it consume your actions
18. Attend all of the franchise meetings and conferences
19. Be Honest and Ethical
20. Be Market Driven and Sales Focused (plan around your customers needs and wants, then build culture of being focused on your sales strategy)

Now that you have undertaken your risk management evaluation, it is time to enter into your own business. Now is the time to move forward with confidence and a positive attitude.

Philip Ciniglio

Managing Director, Market Minds Pty Ltd

www.marketminds.com.au