21 Feb Things To Be Wary Of If You are Planning on Buying a Franchise
While buying a franchise is easier and more affordable than establishing your own small business, you shouldn’t take this step lightly. Many entrepreneurs invest in a poor franchise and see little to no returns on their investment.
It’s important to research every franchise option available to you carefully before you make your investment. Here are some things you need to be wary of:
#1 “Hot New Franchise”
This is an excellent marketing term because it immediately sucks you in and tempts you to consider the franchise on offer. People don’t realize that a “hot franchise” can’t really be a “new franchise”. The franchise industry relies on two important factors; the ability to replicate the same system in different locations and the brand popularity and value. Both of these are untested in new franchises so you won’t know whether you might receive any significant returns on your investment. New franchises have the potential to offer big returns, but they’re also a risk.
Entrepreneurs often feel that they’re their own “boss” when they own a franchise but that’s rarely the case. The franchise contract will impose a number of restrictions on you to have control of how the brand is presented to the customers. These restrictions will curtail your freedom and have an impact on how you must run your business. You need to read and understand all of the conditions the franchisor imposes on you to understand just how much freedom you have with your own franchise branch. Some franchise establishments are more flexible than others and choosing them might make things easier for you in the long run.
#3 Franchisor Control
Franchisors don’t just place restrictions on how you run the branch, but also retain a lot of control over the operations, systems, branding, and products, etc. As a franchisee, you might have very little say in any changes they make to the franchise system or business. For example, they can introduce new products or services that would require significant expenses on your part to stay ahead of the competition. You should choose a franchisor that would offer you some measure of control over the franchise. These changes might still be implemented, but if you choose the right franchisor, your opinions on the matter will be considered seriously.
When you purchase a franchise, you need to pay the franchisor royalties to use their brand. This can be a fixed amount or a percentage of your earnings based on the nature of your contract. Most franchisees fail to consider how this will impact their profit and if the effort they put into the venture would be worth the earnings. Not all franchises will provide consistent profits and returns so they won’t justify your investment.
Before you purchase a franchise, you need to examine their market performance carefully and determine just how much you will be able to earn for the amount of effort you put in. Running a franchise requires just as much dedication and commitment as running a small business. You might prefer starting an independent venture to owning a franchise.
Franchises can be a great way to earn money and get out of the daily corporate grind but you need to consider the franchises and contracts carefully before you commit.
If you want to know more about more about franchise leadership or want some advice, feel free to get in touch with us at The Franchise Institute. You can call us on 1300 855 435 or fill in this contact us form and we’ll reply as soon as we can.
Thanks for reading,
The Franchise Institute Team
1300 855 435