Revealed – the top seven mistakes prospective franchisees make

Running a franchised business is an excellent way to enter a target market for several reasons. For instance, you’re working with an already established brand name, and you’re selling products and services that your customers want to buy.

There are numerous franchise opportunities, and you’ll likely find one in your niche. The trouble is, many entrepreneurs make some common mistakes when looking for franchise opportunities or getting involved with new franchise ventures.

If you’re considering becoming a franchisee, the following points illustrate the most common mistakes to avoid.

Trethowans
Trethowans

1) Not checking the reasons for failed franchises

Some people become so impressed with the sales and marketing literature from franchisors that they forget to conduct plenty of due diligence. For example, they aren’t checking how many franchises have failed in the past and, importantly, why they failed.

When conducting such research, you should contact the former owners and inquire why their franchises are no longer operational. Was there little demand for the products and services in their specific area? Are there negative associations with the brand?

Each of those former owners will have a story to tell, and if there’s a common theme among them, you may want to avoid that particular franchise opportunity and look for another elsewhere.

2) Not seeking the right opportunities

As you can appreciate, it can sometimes be challenging to find a franchise opportunity that best meets your needs. There is a sea of franchise options out there, and it can be all too easy to select the first one you come across that mostly meets your requirements.

The truth is, you need to spend some time seeking franchise opportunities and shortlisting a few before researching them thoroughly and, ultimately, choosing the best of the bunch. Starting a business is a big deal, and starting a franchised one is no exception to that fact.

3) Not contacting current franchisees

You already know about the importance of finding out why existing franchises are no longer in business. But, you also need to find out how existing franchisees are operating; are they profitable, or are they struggling to break even?

The disclosure document will have information on past, current, and future franchisees. You can use that data as a starting point when researching existing franchisees to contact.

You will find the franchisor will give you a tour of two or three of those franchisees. In those cases, you should ask them at a later date whether the franchisor compensated them for giving you a tour of their businesses.

4) Forgetting to start with enough capital

Some entrepreneurs are so keen to start new franchise opportunities that they sometimes forget there’s a need to have both startup and working capital. Franchisors will clearly state how much money franchisees need to put on the table.

But, it’s up to the franchisee to determine how much capital they need to launch their new business and keep it operating until it breaks even and starts making a profit. The franchisee would also need to take into account the money they need to cover their personal expenses.

5) Not working with a lawyer

You must keep in mind there are many legal documents to review and terms to scrutinize before you can even think of signing any contracts with franchisors. The last thing you want to do is sign any documents and later realize, to your horror, they don’t meet your approval.

That’s why it makes sense to have a lawyer on retention that will help you navigate your way through the inevitable sea of documents you must review and sign before you can get started.

6) Not working with an accountant

Another essential professional you should have on retention is an accountant. Your lawyer is undoubtedly in charge of checking all franchise contracts and documents, but it’s your accountant that will determine whether your franchise idea is viable or not.

You need an accountant to check that it’s possible to fund a franchise and turn it into a sustainable business. Put simply, if the numbers don’t add up, you need to walk away from the deal and find a franchise that better meets your requirements.

7) Not paying attention to marketing

Finally, one crucial mistake some franchisees make is assuming they need to put little to no effort into their marketing. Never assume that a franchise model will market itself; you still need to conduct marketing campaigns as you would any other type of business.

Photo by Vaishnav Chogale