10 Questions To Ask Yourself Before Investing In A Franchise
Investing in a franchise can be an incredibly profitable business venture, and you don’t need years of experience or expertise to do so. That said, it is also a commitment which requires time, energy, and money. Therefore, if a franchise opportunity does appeal to you, there are several important factors you may wish to consider before you start investing. Franchising isn’t for everyone, but for those who do decide to take the plunge and are committed to making their business a success, they could reap the many rewards and the freedom that often comes with franchising.
Here are ten questions you should ask yourself before investing in a franchise:
1. What are the perks and expectations of investing in a franchise?
Buying into a franchise is a great alternative to starting a new business. As the brand you’re investing in is already successful and established, there is less financial risk involved, higher job security, and a higher success rate when it comes to making a profit. In fact, it’s said that “80 percent of new businesses fail within five years and 80 per cent of new franchise businesses succeed in the same period.”
On top of this, you are not alone as a franchisee; you should be offered lots of training when settling into your role and many franchisors provide ongoing support for their franchisees.
As a representative of the brand, you’ll be expected to adhere to certain rules, procedures, and guidelines when it comes to operating the franchise. In addition you will usually have to pay an ongoing fee, “Sometimes this fee is referred to as a ‘service fee’, ‘continuing fee’ or ‘royalty’. The management service fee aims to reimburse the franchisor the costs in providing the continuing services to the franchisee, which are set out in the franchise agreement.”
2. Do you have what it takes to be a franchisee?
The most obvious thing you need as a potential franchisee is the funds to invest in a franchise business, which we’ll cover in point 10 below. Money aside, however, there are several important qualities to being a successful franchisee.
As a potential leader and manager, you’ll need to be willing to give your time, energy, and enthusiasm to the franchise. Most importantly, you’ll need to be passionate about the brand and the business plan, as you’ll have to embody the company values and messages in everything you do.
3. Do you have a particular industry or business you would prefer to be involved with?
There might be a specific industry you’ve always wished to work in. Investing in a franchise is a great way of fulfilling this wish. Do some research to see if there are any franchise opportunities in your preferred industry. Find out if they’re already an established franchise, with successful franchisees who you can speak to – speaking to other franchisees before investing is paramount. Alternatively, if you know of a specific brand you wish to get involved with, get in touch to enquire about any opportunities.
It’s important to research the area you’re interested in to gauge what the market is like. If you find your preferred market is not as prosperous as you’d like it to be, it might be worth having a look at other sectors to invest your time and money into.
4. Do you possess the right skills and experience to run a franchise business?
Undoubtedly, one of the biggest advantages of investing in a franchise is that you aren’t required to have bags of experience or prestigious qualifications. If you have industry knowledge, of course this is a plus, but there are other more important prerequisites for successfully running your own franchise.
Dedication and perseverance are crucial. Not to mention, great organisational skills, leadership skills, and great communication skills are key for this kind of enterprise.
5. Are you aware of your strengths and weaknesses and are you able to work around them?
Understanding where your strengths and weaknesses lie is always an important ability to have. But it is even more important when you are considering taking on a franchise opportunity.
For instance, being aware that you don’t have great customer service skills means a franchise in a retail business might not be the best decision. Additionally, when buying into a franchise business, your weaknesses can potentially work to your advantage. If you lack a creative eye, then working with a franchisor who can take care of this aspect of the business for you could be preferable. By working with a well-established brand, you’ll be all the more comfortable sticking to their business methods and marketing strategies with little to no variation. After all, they are operating a proven franchise model.
Make a list of your various qualities - including the negative ones - and figure out if they are compatible with the franchise you’re considering investing in.
6. Do you wish to work from home or on location?
Whilst many franchise investment opportunities require your physical presence in a business’s premises, there are options for you to take a position working from home as a franchisee. Many established companies offer online training and the virtual support network you’ll need to start running a franchise from home.
These kinds of opportunities are great for parents wanting to explore a business venture whilst dedicating time to their family, or someone wishing to start their own professional endeavour from the comfort of their own home. Learn more about at-home franchise opportunities here.
7. What kind of hours are you able to work?
Some sources can make investing in a franchise seem like a daunting and demanding responsibility. However, the reality is that you can decide how many hours a week you want to work. Certain franchises, particularly in retail, may require the franchisee to work long hours throughout the week to suit the business’s opening hours.
It’s important to find out what type of time commitment you’d need to make with the franchise you’re considering and whether this fits in with the time you’d be able to dedicate to it.
8. Are you prepared to put in long hours to get your franchise off the ground?
Whilst you may have chosen to explore the idea of owning a franchise due to the freedom that comes with being your own boss, that doesn’t mean that you can expect to succeed without putting in the effort.
When first setting up your franchise, you will inevitably be working more hours to get accustomed to the operational side of the franchise. Some sources even claim that for a full-time franchisee looking to establish themselves, it’s not unusual to be working 60-hour weeks. But don’t let this put you off, this type of dedication will set you up for success and profit in the long term and give you the lifestyle you’re looking for.
9. Do you know enough about the structure of a franchise?
To further prepare yourself for a franchise opportunity, it doesn’t hurt to be clued up on the ins-and-outs of the franchise business model. This means both understanding what a franchise is in a general sense, as well as understanding the business model of the specific brand you wish to invest in. Don’t just ask if you’re right for this opportunity, ask if the franchise opportunity is right for you. Buying into a franchise is a business partnership between you and the franchisor and you ultimately need to work together to both be successful. It’s a contractual agreement between franchisor and franchisee, so familiarise yourself with franchise agreements and take due diligence when picking a company to go into business with.
Make sure you fully understand what will be expected of you, what your main responsibilities will be, and what you will get in return. This way you can evaluate if you’re prepared enough and capable of buying into a franchise.
10. Do you have the financial means to buy into a franchise?
Before anything else, you need to make sure you are financially ready to take on an investment into a franchise. The cost of investing into a franchise can differ wildly based on the brand or even the location. When researching how much it will cost you to buy your franchise, don’t forget to look into ongoing management fees and marketing levies you may be required to pay, along with the costs of any necessary legal and financial advice you might wish to obtain.
If you don’t have the money outright, you can also consider different options for gaining the funding required for this business venture, such as bank loans, government-funded small business loans, or personal loans from friends or family. What’s more, some franchisors partner with financial institutions which makes it easier to secure a loan.
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