Key Questions to Ask a Franchisor BEFORE you Buy a Franchise
I
f you are in the market to buy a fran- chise, go out and buy a copy of this months’ Entrepreneur magazine. They just released the list of the best Fran- chises for 2010. At the top of the list? Subway, McDonalds and 7-Eleven. As I was reading through this excel-
lent information, I came to think about what is important when picking a fran- chise? I thought it may be a good idea to tag on some key questions to get clarity on before venturing out and investing a lot of your money in any franchise concept. This is not a comprehensive list, but a list of key questions; a list of questions, that many people tend to overlook. You need to do a lot more re- search before signing on the dotted line.
1. What is the Name
Recognition of the Franchise?
Franchises work well, when there
is great name recognition among the target market. Everyone knows about Subway, McDonalds, and many other franchises. However, before you buy a franchise with little or no name rec- ognition in your area or market, ask yourself, how much leg work are you willing to do to build your business, while still paying royalties and fran- chise fees. If a franchise has little or no name recognition, launching it will al- most be identical to launching a brand new business.
2. What is the Success Rate
of the franchisees?
Don’t just believe the numbers the Franchisor will tell you. Many franchi- sors have ways to make the success rates of franchisees look better than it actually is. Remember, if they are not telling you the average success rate, or are trying to avoid the question, chanc- es are they are not willing to tell the
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whole picture. A franchise that is well run and established should have no reason to hide this data or artificially inflate the numbers. The success rate of any franchise concept should be sig- nificantly higher than that of a regular start-up. In fact a well run Franchisor should be proud of the success rate of their franchisees. But always remem- ber, that you are still the owner of the franchise and it is up to you to make it work. The franchisor can and will give you no guarantee of your success.
3. What Are they Doing to Help you Market your
Business?
As a potential franchisee it will be
your responsibility to market your business. You cannot expect the fran- chisor to do all the marketing for you. However, there are some things that you should expect from a franchisor. Ask what they are doing to promote the name of the franchise in your area or target market. If you are paying marketing fees as part of ongoing pay- ments, ask how these fees will benefit you. If you have to spend 5% of your revenue on marketing fees, it makes no sense, if none of that money will be used to promote the name of the fran- chise in your territory.
4. What exactly are you
buying?
Prior to signing with any franchi-
sor, do some research and ask yourself, what you actually get from spending a lot of money to buy the franchise. Are you getting name recognition? Are you getting intellectual property? Are you getting Marketing Support? Are you getting help with your lead gen- eration? Is the concept of the franchise
Celebrating 18 Years of Diversity
By Joerg Sieber
mature enough so you don’t have to constantly innovate the product or ser- vice on your own? Unfortunately, there are businesses out there that decided to franchise their concept too soon, and the franchise system is not matured. As a result, you will have to perform a lot more entrepreneurial tasks than with another, more mature franchise. Yes, you will get in on the ground floor of the business opportunity, but you also will have to do a lot more leg work.
5. Are you a good fit?
If you are buying a fast food fran-
chise, are you going to be happy with the industry? Can you see yourself helping out in the business as you are starting out? If you are buying a ser- vice company, are you the “product” the company sells? In other words, will you be selling services provided solely by yourself? In that case, be aware, that you are selling your own time. This is okay as long as you are aware and con- tent with this. The most important question you need to ask yourself:
CAN YOU DO IT ON YOUR
OWN?
If your answer to this question is
yes, or maybe, you should investigate what it would take for you to start a similar business on your own with- out franchise fees and royalties. If you have what it takes to be do-it-yourself entrepreneur, you may not be happy with any franchise. Remember, a Fran- chise will put constraints on you in terms of what you can and cannot do. If you have no issues with that, you may be a good franchise candidate.
Source:
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HISPANIC NETWORK MAGAZINE 67
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