How Franchisees And Prospective Investors Can Avoid The Pitfalls Of Franchising

Written by Editor

Acquiring a franchise can be an exciting and rewarding journey. Or it could be an expensive mistake. With initial investments typically starting from upwards of $100,000 at least, coupled with ongoing payments in the form of royalties, there’s a lot to think about before you start putting up all that bread.

Related: Common Mistakes People Make When Searching For A Franchise Opportunity

Handle Your Emotions

Being in love with a product or service and being able to successfully run that same business are two very different things. Instead of relying on your gut feeling, check your emotions and adopt a more practical approach — look at what skills could be required to succeed in that business and whether you would be able to handle those.

Accept The Role Of A Follower

While there is some wriggle room for innovation, anything you do needs to be within the franchisor’s stated guidelines. If not, explicit permission needs to be obtained. Basically, you need to do what you’re told and follow the system. Not exactly being your own boss as widely marketed but it is what it is.

Become An Investigator

Before contacting the franchisor to express your interest to join the system, perform your own research and try to find out as much as possible about the franchise, both good and bad. In this way, you can gain a base knowledge of the business you could potentially operate in future. More importantly, this could allow you to spot discrepancies in what the franchisor is saying and what you had seen or know.

Have Enough Money

One of the most common mistakes franchisees make is to setup shop while being undercapitalized, and there are two aspects that need attention. 

The first is to ensure you set aside (on top of your initial investment) a starting working capital that can sustain until the business gains traction. As a general rule, the amount should cover three months' worth of fixed costs that the business has to bear, mostly accounting for rental expenses and staff salaries. Secondly, you’ll also need to consider your living expenses and financial commitments, and create a sustainability budget until the business’ profitability allows you to draw a salary. If you yourself don’t make it to the end, it really doesn’t matter how successful your business turns out. 

How much optimism or conservatism you adopt is really up to you, but planning for a larger financial cushion is always a safer bet. Besides, you can always ask for the franchisor’s advice, that’s what they are there for.

Be Ready To Put In Your Sweat, Maybe Some Tears & Blood Too

The word “turnkey” is a reference to the fact that one party just needs to turn the key to make it operational. Hence, the term “turnkey”. But franchising isn’t a turnkey project (not by default anyway). The franchisor will be there to provide support and advice but they’re not going to execute the plan for you or be responsible for your success. At the end of the day, you will have to perform the required tasks and make it happen yourself. In short, you have to be willing to get your hands dirty.

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