How to Pick the Right FranchiseHOW TO FIND THE RIGHT FIT
So you have taken the major leap of confidence and have decided to “Be Your Own Boss”! Well done! A Franchise is well regarded as the surest way to ensure business success. But how do you find the right one for you?
There are a number of elements in making this major decision. Each of these elements is vital and if you are honest with yourself and realistic with your expectations, you are very likely to succeed.
This is the first in a series of tips that will include:
- Your personal profile and why its important
- Realistic Expectations
- Due diligence tips
PART 1 - YOU
The first element is obviously YOU. Your personality and skills are vital to the success of any endeavor you undertake. Your strengths and weaknesses can help you to succeed or assist you to fail.
So where do you start? Firstly it is very important that you have a good hard honest chat with yourself.
One idea I like is to sit down and start writing down your likes and dislikes. Think about all the jobs you have had in the past and think about the elements of that job you liked and the elements you disliked and write them on a piece of paper in 2 columns.
Then write down your strengths and weaknesses. It is very important that you are very honest with yourself here. Strengths are things that you enjoy, things that you are good at, and things that you think you can get better at with the proper training.
Weaknesses are the things that you hate doing, things that you will always procrastinate with. These are things that you absolutely don’t enjoy and won’t or can’t master.
Now that you have this list, keep it somewhere. Show your partner or a family member or close friend. See if they can think of any others. This will be fun….lets see what they really think of you! Just kidding, getting external help can help you clarify and quantify your strengths and weaknesses better.
Once you have this list. Save it somewhere.
A business will often fail because the person at the helm is not inspired by it. You have all had the experience of walking into a store where the person serving you just does not want to be there, their mind is elsewhere and you can sense you are not welcome.
Have you gone back to that shop, or asked for the same sales person? If you are like me and most other consumers out there the answer is “probably not”.
This problem is magnified a 1000 times when the owner or boss does not want to be there. This attitude trickles down to the staff and their level of service. It also affects the overall atmosphere of the business and people will go elsewhere.
Don’t make the mistake of thinking that you will just hire someone to do the things you hate. When any franchise or business first starts up, you need to do everything yourself and you need to do it well. Money is tight and you are the central person in this enterprise. You must lead by example.
You need to work hard in the business, no matter what it is. You have to wake up every morning inspired by what you are doing. You have to be positive to your staff and inspire them. If you can do this you are well on your way to business success. So start with this step and it will help you to find out what makes you tick so that you can get the best possible chance of success.
Start with yourself first. Try not to change your personality to suit the business. It is easy to get caught up in the excitement of going into a business without stopping to see if this business really suits you. This part is the key to the long term viability of your business.
PART 2 –REALISTIC EXPECTATIONS
When most people decide to run their own business one of the major driving thoughts is that this will lead you to being rich. The reality is, you cannot expect a business that costs you $20,000 to give you $200,000 a year return. That is why it is very important to understand what type of return you need to make to sustain your current lifestyle.
Break down your current spending and be realistic about what you need now and what you will need in the near future. How much will sending kids to high school cost, buying a new car every 4 years, and the big one, what if interest rates go up again and have I got enough fat to wear that?
I am not saying this to put you off but you need to think about this stuff very carefully. A good place to start is to have a chat with your accountant. They will have an idea of your current expenditure and be able to do an annual budget and forecast for you. This will be an invaluable tool. With this you can see what you need to return. Then when you do your own business plan on the prospective franchise you are going to buy, you can see if the figures all stack up. Once again, I would do this before you start looking. That way you won’t get caught up in the moment and the concept and you can be realistic about your current situation.
A couple of key things to bear in mind when you are doing the business plan for the franchise:
- Loan repayments – are they affordable and do they leave anything left over for you to pay yourself?
- Forming a company – should you form a separate company to run the franchise? – speak to a lawyer and accountant
- Lawyers and Accountants fees – budget for $2-4000 initially and then you will need to have ongoing consultations. Try and get a fixed price on any work rather than just getting them to do things and paying later.
- How long will you have to wait until the business starts being profitable and do you have enough cash flow to sustain you over the initial period of growth?
- If applicable the rent and what are the terms. How much are the annual increases?
- Purchasing of stock. How much will you have to have at hand and how much money does this tie up?
- Wages – yours and your staffs. Get advice from other franchisees and accountants on this
- Royalties you have to pay
- Self promotion – even though most brands have a marketing levy, that normally is fro general brand awareness. How much will you have to do yourself in your local area, both at launch and ongoing. Very rarely can you rely on the marketing levy to give you all the exposure you need.
- Self training – does your franchisor provide you with ongoing training or should you get a business coach? How much will this cost?
Then you have to look at this business plan and your financial position. How much will you be able to lend, and how does that affect your net return? Does this business deliver what you need to sustain your lifestyle?
One thing though about buying a business, the more you put in the more you get out.
A lot of business models will give you an opportunity to create an excellent income but they are not guaranteed.
Any businesses success is always subject to the franchisee.
If you work hard and follow the directions given you have a very high chance of success and very positive financial outcomes. If you think that the brand and products are all you need and that business will just walk in that door you will often be very mistaken.
This is a vital part of the whole purchase. So far you have worked out your strengths and from this you now have an understanding of what type of franchise will suit you.
You have an understanding of you financial situation and you know what your affordability is and your required return.
You have realistic expectations that no matter what the business, you are going to have to work hard, especially at the beginning.
And now you are ready to look at a few franchises!
There are a number of sources for the information you will need before selecting the right franchise. Firstly you will find franchise brands advertised in this and other franchise specific publications. You will find them advertised in franchise directories on the internet and you will find them advertised in the Business Opportunities sections of most major newspapers.
I would suggest looking at all 3 types of media. The Newspaper is often a short call to action ad which tells you the very basics. If you see something you like or even if you don’t, pick up the magazines and read editorial and general detailed news on what is going on in the industry. You should also search on the net. Most franchise brands advertise there. Some web sites allow you to read more detailed information on a brand and give you an idea of price and royalty structure etc.
Once you have found the franchise you are interested in and contacted the brand you will normally get an information pack of some description. If you like the brand and you think it suits your lifestyle you need to get more detailed information.
A disclosure document will give you very specific information about the brand. A lot of brands will also show you how well their business can do.
At this stage one of the best things you can do is to randomly call up some other franchisees. Not just the ones on a list they provide to you but talk to some others.
When doing this you need to listen with some balance. Almost every Franchise brand will have a small percentage of unhappy franchisees. This is just life. Some will be lazy and get disappointed when their unrealistic expectations aren’t met. Others will have personality issues with their franchisor and will just generally miserable.
The main things you need to know are:
- How much support do they get
- Was their site selected for them and if so was it a good one with competitive rent
- How is product supply is it constant or are there issues with quality and consistency
- What is the franchisor doing to market the brand to the general public
- Is that marketing affective
- How much brand development is the franchisor doing to keep the franchise system ahead of its competitors
- How often are you expected to re fit your store(if applicable) or upgrade your vehicle( if applicable)
- What percentage of turnover are they netting (try not to get too personal here, some franchisees will tell you everything but they don’t need to. Ask good questions to confirm that the figures given to you are realistic)
Always call a few franchisees to get a bit of a balanced picture. Call some on the list they gave you as well. Really do your homework. If you get things right at this stage the rest will go much better for you.
Another key factor in due diligence is the legal aspect. When you approach a lawyer and accountant to give you advice firstly make sure you negotiate a fixed fee for service. Make sure they tell you exactly what they will deliver and how much it will cost. Be careful to do this, because if you don’t you may end up getting services that you don’t need and never asked for at very high prices.
Also make sure that the lawyer you speak to is a franchise expert. There are lots of lawyers but few specialise in franchise law. It is a very particular field and only the specialists know of the latest legislation and things to look out for.
The same goes with your accountant. Try to find an accountant that has had experience with franchise systems. Often you own personal accountant won’t have this experience and may advise you avoid the opportunity only because they don’t understand the information you provide them. Once again get a specialist and get the right advice. Maybe even the accountant of one of the franchisees would be a good idea. They will have a good grasp of how the business really works.
If you take the time to do your own research first, follow these steps and do your own business plan based on the franchise you are looking into then you can be pretty confident that you will succeed in this venture.
Read some books and do some homework on the net.
Don’t take shortcuts, and take the advice of professionals seriously. Ask lots of questions and make sure you have the support of your partner and family as well. It’s important to have them behind you 100%.
Owning your own business can be one of the most rewarding experiences of your life. If you get it right it can help you be both personally and financially well off. Good luck!