Fight your franchising fears!
More often than not, it is a combination of five key fear factors that frightens people into balking at the notion of a small enterprise or franchise business.
After standing by Cafe2u from its early beginnings as a one-man van operation, I have noticed that many of those who have bought into my franchise had long fought personal demons prior to joining. They were commonly held back by the ‘Big Five’ franchising fear factors: misinformation, unfounded concerns, personal misgivings, fear of failure or the alarmist reactions of family and friends.
Potential franchisees need to confront these fear factors and dispel fear through a considered rationalisation process, along with the acknowledgement that you are buying into a tried and tested business model that is already trading successfully with a proven track record, therefore the risks are substantially lower.
Misinformation
Investing into a franchise can be rewarding and highly profitable, but making the right choice requires a significant amount of careful and structured research to ensure this misinformation never occurs. Understanding the working capital requirements, total investment needed and estimated time required before reaching profitability are all important financial considerations an investor should research before making a decision to purchase a franchise.
A great way to start researching before making the decision to invest in any franchise system is to get a copy of the franchisor’s disclosure document. This document outlines everything you need to know about the company, its history, the costs involved and any competition which you may face
If you start a business on your own, you can only guess at the struggles and obstacles that lie ahead. But if you decide to buy a franchise, instead of going it alone, the problems that entrepreneurs run into have already been dealt with and worked on by the franchisor.
Personal misgivings
Personal misgivings such as generating business from nothing, grips potential entrepreneurs with fear, understandably. At the early stages, it is only normal for any franchisee to have uncertainties with the new commitment they are about to take on. It’s not just a job, but a life change! Many feel they are not smart enough and won’t be able to handle the pressure of owning a franchise or maybe even fear the act of certain processes they are unfamiliar with, such as cold calling.
There are many factors with buying into a franchise which can take the uncertainty out of getting started. First of all, all you need to do is concentrate on mastering the essential day-to-day elements of the operation. For example, a franchisee is assisted in disciplines such as marketing. You don’t have to become a marketing guru as that support is integrated into the business model for you. A portion of the fees you pay as a franchisee goes towards marketing but comparatively the cost is minor as it is absorbed by multiple contributors. It is an economies-of-scale scenario.
No mention of the current feud between franchisors and franchisees over including a good faith clause in contracts? The industry is weighted too heavily in favour of the franchisors.
The contracts certainly are weighted in favour of the franchisor, let the buyer beware.
Thanks Andy for an interesting article, good to see someone who has actually trodden the road writing about it to.
I’ve had a franchise which was rubbish and currently in one I’m very happy with. Unfortunately many shifty Franchisors are really like MLM’s in that they are more interested in selling to potential Franchisees than shifting their product, and many franchisee’s are business newbies so get sucked in. So my top tips for punters, aside from your suggestions are;
- get on the phone and make appointments to talk with current franchisees, if possible go and see them. Try and read their body language and what they don’t say. Eg if they are over the top positive then great, if they answer in a reserved and hesitant manner then ????. Remember, they have a lot of money tied up in the ‘brand’ so they are unlikely to bag it out as it will affect the value of their business, even if they are negative about the franchise – believe me, I’ve been there and know others as well. Try and read between the lines.
- how does the franchisor make their money? Is it from license sales or from ongoing fees from turnover? Many seem to make their money from the sale of the franchise so they don’t need to support you, they’ve made the bulk of their money and if you get out in 3 years they’ll charge you on your exit as well so there is actually an incentive for them to turnover franchisee’s. If on the other hand they have a low entry fee but a higher turnover fee then there is a huge incentive to get the right franchisee and support you and make it work. I’ve seen too many people mortgage their house to pay huge franchise entry fees which then leaves them with little working capital and a lot of pressure. Ultimately they crumble. Avoid the big entry fee organisations, look for ones that back themselves to sell the product rather than sell the licence.
- It’s difficult because franchisor’s can tell you amazing stories of what other stores etc are doing, how much you will make and what they have planned but ONLY go by what they commit to in writing, if they won’t put it in writing or show you evidence don’t include it in your factoring.
- do you like the franchisor? if you have met them, like them, got to know them and trust them GREAT! if not, endeavour to do so because you can’t be in business with someone you don’t know, like or trust – simple.
That’s my .20c worth. Cheers
Grant Dempsey
4Networking