Franchises play an integral role in our lives and you probably frequent one regularly. You may know people who have found success through franchising. Perhaps you’ve even considered purchasing a franchise yourself. If so, you may have a number of questions you haven’t quite been able to find the answers for.
Here are six common questions people are asking:
1. Should I own my own business before buying a franchise?
It can’t hurt, but it’s not essential. Keep in mind, some franchisors would prefer that you didn’t. Why? If you were in the same industry, you may have habits that they’d have to spend time breaking.
You’d have management styles that may not be compatible with theirs, and the natural thing would be for you to slip back into your comfort zone.
On the other hand, having experience working in any business gives you discipline. You understand how to work with customers, meet deadlines and take on responsibility rather than relying on your co-workers in a big company.
Either way, a lot of franchisors realise that people who come out of training remember about 20% of it, and then they struggle for a while until they grasp the rest of it through practical experience in the franchise setting.
2. I’ve built up significant equity in my home. Would it be wise to cash out some of that equity to invest in a franchise?
Be careful, as with any investment. There’s no difference between investing in a franchise, and investing in a stock. If you invest in a very stable, secure franchise with a great history and good performance, there’s not a lot of risk.
If you get involved with a franchise that’s a fad or that you don’t know a lot about and haven’t researched, don’t invest a cent. Most people use the equity in their homes because it’s their major asset and they can borrow against it, but you should make sure that what you’re investing in is a rational investment.
3. I am 20 years old and interested in buying a franchise instead of going down the usual career path. What are the obstacles in franchising for a young person?
Probably fewer than you imagine. There are going to be some franchise sales people who will talk down to you, and you need to understand that you have to set them right and tell them you’re a serious investor. If you’re 20 years old, you have more enthusiasm than you have experience.
You need an experienced advisor. You need one at any age, but at 20, you really do, and dad and mom aren’t it, unless they happen to be franchise sophisticates. You should definitely find yourself an advisor and a good lawyer and learn about franchising as much as you can.
Being honest, franchisors are in the business of selling franchises and expanding their systems, and if you come to the table with enthusiasm and knowledge, you’ve done your research, have the money, can show the franchisor you’re serious and have a good track record, they’ll treat you seriously.
You also need to do more than just believe everything the franchisor says. Twenty-year-olds are more gullible than 50-year-olds – most of the time.
4. I am currently working a corporate job and am planning to buy a franchise, but I’m not sure how to time the transition. Should I sign the franchise agreement and purchase the franchise before quitting my full-time job?
Yes, absolutely. But more importantly, you’ve got to realise that the franchise isn’t going to immediately produce the cash you used to get as a pay cheque.
It’s going to lose some money. So if you’re in a relationship, both of you shouldn’t quit your jobs. Somebody should keep their job until the business can produce enough income to support the family.
That may be a year, that may be ten years, but at least that income is coming in. You can always hire someone to help with the franchise, but you don’t want to give up your medical aid.
While you keep your full-time job, you can go to franchisor training for two weeks using your annual leave. You can work weekends to find locations.
You can do a lot of preparation and not give up your job and your pay cheque just yet. You want to be able to make decisions without having the pressure on you. As long as you have an income, you can pass up that site that looks pretty good and wait for the site that looks really good.
5. I have some personal savings, but have not yet started saving for my retirement. Would you suggest investing my savings in a franchise, and using the franchise as an investment I can live off in retirement?
It depends on how old you are, how close you are to retirement, and whether you are a risk-taker or not. And again, it comes down to how secure the investment is.
If you’re in your 30s, it’s a different answer than if you’re in your 50s. In your 30s, you’re entitled to make mistakes and can rebuild. If you’re in your 50s, living with children in your 70s if you foul up is not going to make you feel good, and that’s what you’re facing.
Overall, the answer is yes, just be extra careful in your 50s. A business is something you can sell when you’re ready to retire, and when you sell a business that has a great cash flow and is under a great brand, that is a heck of a retirement.
6. I have started to research a franchise I’m interested in, and most of the franchisees I’ve talked to are happy with their investment. However, there’s a small group of disgruntled franchisees. How much weight should I give these franchisees’ opinions in my overall decision?
A lot, but in every franchise system some people are unhappy. You have to listen to why people are unhappy.
You should always call the people who have left the system, and every franchisee if you can, to find out what’s going on. Understand that those people are going to have a negative viewpoint. But it’s important to know why.
If they’re unhappy because the franchisor wouldn’t let them do things their own way, that’s a good franchisor. It’s protecting the brand. They’re just bad franchisees. If, on the other hand, the franchisor didn’t provide them with field service, it didn’t provide them with the contracts that were promised. If every time they spoke to the franchisor, the franchisor threatened to sue them, I’d listen to that, too.