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Buying a Franchise - Mistakes

Guest post by: Global BX

Article Overview: A franchise is not for everyone. There are many things you need to consider and watch out for before investing your savings into a business opportunity.

Buying a Franchise - Mistakes

Tips to Remember When You Buy a Franchise When you decide to go into business, you should buy a franchise or an existing business for sale instead of starting a company from scratch. With a franchise business, you get to enjoy numerous benefits such as solid and reliable parent company support, brand recognition, and easier financing from conventional funding sources such as commercial banks. However, a franchise is not for everyone. There are many things you need to consider and watch out for before investing your savings into a business opportunity. Things could go wrong, but here are the top 10 mistakes that you need to consider and, of course, avoid at all cost:

* Not comfortable with rules and regulations - Not everyone is suited to be a franchise owner. Once you have purchased a franchise, you become part of a bigger organization that offers remarkable benefits. However, you need to follow certain rules and guidelines. Some of these are strict, which are ultimately not suitable for people who are free-spirited or have problems with authoritative figures. See to it that you read and understand the franchise agreement thoroughly, as this describes in detail the rules you need to follow as a franchisee.

* Market and product ignorance - You don't need to refrain from buying a fast food franchise just because you do not know anything about managing a restaurant. However, advance knowledge or understanding of the industry is an essential part of being a successful business owner.

* Failing to get acquainted with other franchisees - Many aspiring franchisees avoid being the first member of a franchise system because of significantly higher risks. To have existing franchisees is very beneficial because they can offer a wealth of knowledge and information to aspiring franchise owners. In most cases, franchisors require you to spend time with other franchisees to learn a few tricks of the trade. It is always best to do this before you agree to become a part of the franchise family.

* Insufficient capital - All franchisors are required by law to state the total amount of fees that a prospective entrepreneur needs to start and own their franchise. These fees include start up costs, ongoing royalty fees, and franchise fees. However, these are not the only fees you need to consider. There are also payroll, rent, inventory, taxes, etc. If a business is an undercapitalized venture, it would likely go out of business. See to it that you have the money you need to purchase and run your prospect business successfully.

* Misunderstanding the provisions in the franchise agreements - As mentioned earlier, the franchise agreement states all the elements of purchasing and running a franchise. This is the most important legal document involved in acquiring a franchise. Understanding all its elements and content is necessary for the success of your business.

* Absence of professional legal counsel - There are a lot of lawyers today who have enough experience in business and franchisee representation. A good attorney can help you understand confusing clauses or terms in a franchise agreement as well as review legal documents for any third party financing you may obtain.

* Valuing verbal promises - Take note that a sales rep is trained to always put a positive spin on transactions. Representatives of franchisors are not different from sales reps, but this does not mean though that they intentionally mislead their clients. Just keep in mind that the only promises you can depend on are the ones that came from the seller of the franchise and are clearly stated in writing as part of the franchise agreement.

* Underestimating competitors - Before you enter an industry and immerse yourself in it, it is best to have prior knowledge and sufficient information. Assessing your competition plays a very critical part. You need to determine your competitors' strengths and weaknesses, and how you can do better than them.

* What are they doing successfully that your franchise may not be able to do? Conversely, where are their weaknesses and how can you exploit them to your best advantage?

* Poor time management skills - You may need to put in a lot of time and effort in running your own business. There are some tasks or responsibilities that you cannot entrust to anyone, even if you employ a number of personnel. Not recognizing this early on can affect your relationships with family and friends, not to mention putting a burden on your staff.

Failure to promote or market your business - The franchise agreement may state that the parent company will do all the marketing for the entire franchise, which includes radio spots, TV ads, newspaper coupons, etc. However, your business will only succeed if you show enough interest in this aspect of owning and running a franchise. So even if your business is a franchise, note that it's your franchise. Think of ways on how you can get more potential clients to walk through your door.

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Article Tags: buy a business, buy a franchise, buying a franchise, fr, franchise agreement, franchisee, franchises



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Re: Enticing Franchises - Top 9 List - All Franchise listed above are in millions of dollars. Do you have the list of Franchise in thousands
Re: Info for would be franchisers... - [quote="Sebastien":1d29sdv1]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to. I just want to mention that all these magazines are NOT franchisee oriented. I mean these magazines are for franchise professionals. If you're looking to buy a franchise, you won't find much information in there. To answer your question, getting published in Franchise Times was fairly easy. I don't want to brag too much but I think I am known in the franchise industry. I was the marketing guy at Franchise.com for a few years before joining my new company, the World Franchising Network. So people know me and I have a very good relationship with Nancy Weingartner, the Managing Editor at Franchise Times. I was talking with her at the last Franchise Expo South in Miami and she mentioned she'd like me to be profiled. I was like "ok, sure!". I like this franchise executive profile thing in Franchise Times as it is rarely BS. People are usually really natural in there.[/quote:1d29sdv1] Thanks for the follow up Sebastien! And I can't say that I'm surprised that networking with the right people and managing your relationships with them properly are the keys to being published. I guess the old adage holds true of "it's not who you know, but who knows you" that's important.
how much for a franchise fee? - Dear Colleague There is no easy answer to this question. Things to consider: [list=] The sizeof the Franchise Clent base Expected Turnover Intellectual Property costs (recoup) Number of Franchises Number of employees Original Set up costs Franchise admin costs An example: A franchise that I was involved in setting was to a simple "lawn mowing/home repair" franchise. The Franchise included national/local advertising - preparation of client lists - general admin - central accounting etc The Franchise involved 300-500 clients - and an annual turnover of about $300,000 . The annual franchise fee was $30,000. Hope that this gives you some idea Take care Ian[/list]
Re: Franchise Surveys - Another good tool to researching a franchise is to speak with their existing franchisees. This contact information is included in most Franchise Disclosure Documents. In order to get a Franchise Disclosure Document or FDD as it is often referred to, you will have to complete a basic franchise application. The franchisor will then usually provide you with the FDD at that time. Included in that book of information is a list of the existing franchisees, the contract, the investment information etc... This information is required by Federal Law to be disclosed to your prior to making a purchase. So be sure to do your research and start with the Franchise Documents to get the initial information.
Re: Info for would be franchisers... - [quote="Sebastien":2gam0klq][quote="BuzzAroundBooks":2gam0klq]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to.[/quote:2gam0klq][/quote:2gam0klq] That is really what I look for in any industry publication. We lead busy lives and when people fill their magazines with fluff, not only does it benefit no one, but it makes us truly appreciate those that don't. Thanks!


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