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Buying a franchise? Avoid these costly mistakes

Written by: Mary Tomzack

Article Overview: Buying a franchise? Avoid these costly mistakes. It takes a lot of money to build a business, and you certainly don't want to waste any. Check this list of 7 costly mistakes to avoid...

Buying a franchise? Avoid these costly mistakes

Buying a franchise? Avoid these costly mistakes.
It takes a lot of money to build a business, and you certainly don't want to waste any. Check this list of 7 costly mistakes to avoid.
1. Letting emotions rule. Falling in love with a franchise concept is a common mistake. Don't let your emotions guide your decisions. Use your head, do your due diligence and take the time to thoroughly investigate the franchisor's offering.
2. No professional team. Don't try to do your own financials, contract reviews, or negotiating. The cost of professional franchise attorneys, accountants, and advisors is money well spent.
3. Too little cash. Lack of capital is the number one reason franchisees fail. Item 7 in the UFOC will tell you how much money you'll need with a low and high range. Be smart-go with the high range. Then ask current franchisees if the numbers are high enough.
4. Penny wise and pound foolish. Choosing one franchise over another because the initial franchisee fees are lower is shortsighted. It assumes that all franchises are alike and nothing could be further from the truth. Choose the franchise with the proven concept and strongest track record.
5. Too much help. Payroll is the biggest part of overhead for most franchise businesses. New franchisees often hire too many people or pay too much in wages. A good franchisor will provide a good staffing plan. Stick to the plan.
6. No comparison. Never buy expensive equipment, supplies or inventory without shopping around first. Even if your franchisor offers group purchasing, do your own research, shop as many vendors as you can, consider aftermarket suppliers, and weigh different financing options (loans or leases).
7. Marketing blunders. As a new business owner, you're going to be targeted by every ad salesperson around. Ignore them. Follow your franchisor's marketing plan to the letter to avoid wasting thousands.

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Article Tags: aftermarket suppliers, buying a franchise, contract reviews, costly mistakes, due diligence, financing options, franchise attorneys, franchise businesses, franchise concept, franchisee, franchisees, franchisor, group purchasing, marketing blunders, marketing plan, plan 6, professional franchise, professional team, salesperson, ufoc



Related Forum Posts
Avoid Franchise Mistakes - I Came across these 7 tips for helping you avoid costly mistakes when buying a franchise & thought they would be helpful... It takes a lot of money to build a business, and you certainly don't want to waste any. Check this list of 7 costly mistakes to avoid. 1. Letting emotions rule. Falling in love with a franchise concept is a common mistake. Don't let your emotions guide your decisions. Use your head, do your due diligence and take the time to thoroughly investigate the franchisor's offering. 2. No professional team. Don't try to do your own financials, contract reviews, or negotiating. The cost of professional franchise attorneys, accountants, and advisors is money well spent. 3. Too little cash. Lack of capital is the number one reason franchisees fail. Item 7 in the UFOC will tell you how much money you'll need with a low and high range. Be smart-go with the high range. Then ask current franchisees if the numbers are high enough. 4. Penny wise and pound foolish. Choosing one franchise over another because the initial franchisee fees are lower is shortsighted. It assumes that all franchises are alike and nothing could be further from the truth. Choose the franchise with the proven concept and strongest track record. 5. Too much help. Payroll is the biggest part of overhead for most franchise businesses. New franchisees often hire too many people or pay too much in wages. A good franchisor will provide a good staffing plan. Stick to the plan. 6. No comparison. Never buy expensive equipment, supplies or inventory without shopping around first. Even if your franchisor offers group purchasing, do your own research, shop as many vendors as you can, consider aftermarket suppliers, and weigh different financing options (loans or leases). 7. Marketing blunders. As a new business owner, you're going to be targeted by every ad salesperson around. Ignore them. Follow your franchisor's marketing plan to the letter to avoid wasting thousands.
How Do I Start Franchise? - How do I start a franchise? Before one can start a franchise it is important that you do your homework and research your market thoroughly so that you know what you are getting into. To start a franchise, it is vital that you: First, investigate all the franchise opportunities available to you by visiting franchise trade shows or by contacting a franchise agent. Also talk to family, friends or relatives who have set up a franchise, or who know some one who has set up a franchise. It is good to get as much information as possible from fellow franchisees, as not all franchises are good investments Second, talk to franchise owners that are in a franchise similar in to the one you would like to invest in. Ask them if they are pleased they are with their decision, and how well their business is doing. Is it meeting their expectations? Also ask questions about the franchiser and how responsive it is. It is important to determine the integrity of the franchiser you are interested in doing business with. Third, consult any and all advisers. Have an accountant review the audited financial statements the franchiser presents you with, and bring in a lawyer to help review all the legal documents before you sing them. Fourth, thoroughly read the Uniform Franchise Offering Circular, which is a disclosure document in which the franchiser must release certain information such as, any and all administrative, criminal or civil litigation currently pending or completed against the franchiser involving allegations of fraud or misrepresentation. It is a recommendation of the FTC that all franchisers supply a UFOC to prospective franchisees. Also make sure to verify and confirm the UFOC facts. Do a background check on the history and experience of the franchise and its employees. Fifth, compare other franchises. Look for franchises similar to the one you are interested in investing in, and see how well they are managed and financed. Sixth, know and be fully aware of all the terms and conditions of the purchasing contract you are about to sign. Seventh, research as much as you can. Buying a franchise is a complex process and should be approached with caution. The more information you know, the better it is for you. Remember, only you can determine if owning a particular franchise is right for you. When starting a franchise it is key that you evaluate yourself and see if a franchise is the right business investment for you. Investing in a franchise should not be taken lightly as it can be a risky business. It is important that you consider all the facts before you make a decision to invest in a franchise.
Re: Hotmail Scam! - Hi David, Many people will fall for that, because they are innocent and don't know how to recognize the spam in all their junk. Another thing is the English. I only noticed the mistakes because you bolded (is this a word?) them. When we read, our mind know how to automatically change the mistakes to words we are familiar with. The other reason is for people like me that English is not their first language, and may never notice these mistakes, unless someone points them out.
Re: assessing hidden franchise costs - [quote="brandEXPANSION":78zmjzel]Kevin/Russell, Most new franchisees want their totals to be closer to the bottom of the range, but many come out way above the range...and then try to blame the franchisor...i have seen this happen too many times, and in the end, it is a "range" and a "guestimate" of costs, never have I seen one franchise, say, "this is exactly what it costs", so, the term hidden is really self-reliant. [/quote:78zmjzel] I recommend to franchisors that they make the Estimated Initial Investment as realistic as possible, with the low end reflecting an accurate amount needed to open the franchise under the best of conditions and the high end being the estimated amount to open under more costly situations, based on their experience. The low end number should, if possible, be small enough that people aren't disuaded, while the high end number should prevent surprises in most cases.
Re: Franchising Brokers vs Franchising Consultants - To correct some mis-information. Not using a broker/consultant will not save you any money. The FTC is quite explicit about that. The franchise fee is the same whether you use a broker, or if you go directly to the franchisor. Unlike the "MLS", each broker does have a limited number of franchises they represent, however, the more established brokers have created relationships with many more franchises then the portfolios of there counter parts. Some of the companies mentioned above are limited only to the franchises they have available to them. Consultants, like myself, have relationship with over 300 different franchises falling within the top 500. Some of my "high profile" counterparts represent maybe 125 franchises. Most brokers won't help or assist with the negotiation of the sales agreement, not wanting to offend the franchisor. And many do not have a clue as to what items are negotiable, and which items are not. Brokering is more then just matching up a person with a franchise or business, it is assisting the client through the whole process. Even though we are paid by the franchisor (by mandate), our first responsibility is to the client. Case in point, I just received a client that was working with one of the major "broker mills" that was mentioned in one of the above threads. They were almost sold a franchise, the day before the signing the franchise filed bankruptcy. I had stopped doing business with this franchise a year ago, and had an idea of the financial difficulty of this franchise (easily obtained). Why would a broker recommend a franchise that was near bankruptcy (and known in the industry)?...to close a deal, not to service his client. Shame on that broker, and that is what is giving brokers a bad reputation. Who the broker works for is not nearly as important as what service the broker/consultant can provide. Will he assist you in helping you reach an informed decision, based upon your skill sets? After that decision has been made will he assist you in completing the transaction to the greatest benefit to you? Buying a franchise is not a guarantee to success, but buying the wrong franchise is a guarantee of failure. And like many mortgage brokers, car salesmen, and others, they may never see or hear from you again, so why would they care? The decision to choose the right broker/consultant is almost as important as choosing the right franchise. They go hand and hand. Over 85% of my clients end up buying a franchise they had not thought of, they come in with a mindset. When the facts are laid out, the figures are gone over, the item 19 is explained, and options are given to them, that is when they can make an informed decision. You can't rely on websites that promote specific franchises, or rely only on what the franchisor tells you. That is the value of a quality franchise/consultant, to give you pertinent background information along with helping you "get the best deal".


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