Secure Investments

Before investing in a franchise, make sure it’s the right investment for you.

Secure Investments

While franchising is often a safer way to start a business, it’s not infallible. Some franchisees are successful, while others aren’t. To ensure you fall on the right side of this scale, choose which franchise you will invest in wisely, but also focus on your own business skills and acumen.

Understanding what your business personally requires from you from the outset will allow you to choose a system suited to your skills.

Get the full picture

First, always do your due diligence. If you simply take everything on trust, you may be in for some nasty surprises later on. This can be anything from realising that the franchisor has not disclosed everything, to a mismatch in values.

This is not only a business you are investing in, but a system and team you are joining. If your values aren’t aligned, you will not be happy in the arrangement, and your relationship with your franchisor will more than likely be strained.

Make sure you speak to as many franchisees as possible, and don’t only chat to the franchisees recommended by the franchisor, who they know will give a good reference. You want as honest and broad a picture as possible.

Ask the professionals

“Before signing any contracts, you should also get a business broker or accountant to go over the financials, and a lawyer who specialises in franchises to go over the contract and disclosure document,” says Greg Mason, ActionCOACH franchisee and business coach.

“You’re investing anywhere between R500 000 and well over a million, depending on the franchise, and it’s worth making sure your investment is secure.

“Next, make sure you understand the numbers. Ask yourself if they seem reasonable. If something doesn’t add up it’s either wrong or there is information missing.”

Joining a franchise means joining a proven system, which means you have a lot of support if you haven’t owned a business before, but you still need to know your numbers. If you struggle in this area, concentrate on up-skilling yourself.

“Your business won’t move forward if you don’t know your numbers,” adds Mason. “It’s fine to let an accountant or book-keeper do the number crunching, or even rely on the system your franchisor gives you, but the task of interrogating and interpreting those numbers is yours.”

Plan conservatively

Finally, make sure you are able to sustain your investment. “You shouldn’t tie your pension up in something unless you understand it fully,” says Mason. “Make sure you can survive without the money you are putting on the table. Remember that you need money to live until the franchise turns a profit. Most franchisors will tell you the average time it takes for a new franchise to break even, but you should plan for every eventuality.”

Nadine Todd
About the Author
Nadine Todd is the Managing Editor of Entrepreneur Magazine, the How-To guide for growing businesses. Find her on Google+.

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