Flop-Proof Franchising: Research Before You Buy

Avoid these three simple mistakes when buying a franchise.

Flop-Proof Franchising: Research Before You Buy

Entrepreneurs and those with a desire to start their own business must deal with a daunting array of technological, regulatory and operational challenges when launching a business in today’s market. The solution for many is to buy a franchise instead.

Securing a proven business model that provides the support and resources you need can increase the likelihood of success.

However, it’s important to remember franchising is not just about buying into an established business, rather it also includes a partnership that should have aligned outcomes and mutual investment for the entrepreneur and franchisor.

To forge a business relationship based on trust and destined for success, the franchisee and franchisor should evaluate their potential partner against a specific list of attributes – many of which are non-financial.

To help in the process, here are common mistakes that entrepreneurs make and tips to help avoid making those errors.

Mistake #1

Shortcutting the research

Before you dive headfirst into a franchise, no matter how brilliant and/or perfect you think it is, you must be confident in the relationship you have with the franchisor. The prospect of making money can encourage new franchise owners to shortcut the research process, ultimately getting them in over their heads and finding themselves with a ‘boss’ they really don’t gel with.

Expert Tip:

Put your back into the background check. Dig into the culture and history of the business and do market research on the longevity potential of the franchise’s service or product, too. A business based on a short-lived trend isn’t sustainable for the long haul, so knowing where you see yourself in ten to 15 years and aligning that with your franchise goals is key to long-term gains.

Mistake #2

Not checking for alignment of core values

If a franchisee is ‘in it for the money’ without having determined if the company’s core values are aligned with his, then the likelihood of having issues down the road increase dramatically.

Expert Tip:

Seek to understand the core values of the franchisor. Every company worth establishing a partnership with has rock-solid values. Get a feel for the franchisor by speaking with employees, other franchisees and partners to understand how they act when they are not trying to sell you a franchise. How will they act after you’ve paid your franchise fee and when no one is watching?

Mistake #3

Underestimating ongoing investment

When moving into franchising, you have to understand that this isn’t a one-time deal of a large initial capital outlay and then plain sailing. You will have to make on-going investments in both time and money to support the partnership for as long as you operate your franchise.

Expert Tip:

Figure out what investment is required to make your franchise fly… then double it. Even if your investment is modest, you must be prepared to roll up your sleeves and be engaged with the entire business.

Immerse yourself in the day-to-day execution to understand what will be expected of you long-term. Similarly, when buying into a franchise don’t expect to do business your own way — someone has already figured out how to make money and you have a higher chance of being successful when following the existing model, so don’t mess with that.

In the franchise disclosure document, there will be an estimate of the amount of investment you may be required to make. Take a hard look at this and do the maths — then double it. It’s better to be prepared and have leftover capital than to be caught short.

Dan Duffy
About the Author
Dan Duffy is the CEO and chairman of the board of directors at United Real Estate. Duffy is principally responsible for the establishment and execution of a long-term strategy for United designed to deliver competitive advantage to agents as they operate in their local markets and serve their clients.

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