These are the factors to take into account when choosing which franchise to invest in, John Attridge, CEO of BBX, says
Franchises are often looked upon as ‘easy’ alternatives to setting up your own business, but without careful consideration and proper research the dream of being your own boss and becoming a franchisee can be a difficult path.
Doing the right research is integral in choosing which franchise you want to get involved with.
Fitting the mould
Investing in a franchise presents you with many benefits, including a tried and tested business model and added support from the franchisor.
Becoming a franchisee is ideal for those who want to be their own boss, but are still seeking systems or solid tracks to follow. However, franchises involve a lot of hands-on hard work and not many offer the opportunity to be an absentee owner. If this isn’t for you, maybe the franchise model isn’t the right path to take.
Getting a wow product
Passion for the product or service is vital in building a successful franchise. Many franchisees go for the option with the most brand awareness or where they think they’ll make the most money the quickest.
While there’s nothing wrong with this, it could lead to burnout further down the line when the initial excitement wears off and, going right back to basics, how can you sell a product if you don’t like it?
Buying a franchise is just like looking for the right job: it should be in line with your skills, experience and personality in order to be the perfect match.
Being aware of your break even point is vital before jumping feet first into purchasing a franchise.
You should take some time to work out how much you would need to earn to break even for each franchise you’re interested in. From this, you can work out an average customer value. This will help you to assess how long it might take you to break even and thus minimise the risk you take in investing in a franchise.
Different franchises offer different packages as part of the franchise fee and others have hidden charges that could surprise you further down the line.
Some franchises only include the intellectual property fee, while others include fees you need to get set up, such as training, start-up stock, equipment and premises fit-out. There may also be extra essential costs associated with starting the franchise that aren’t included in the initial fee, such as legal fees, rent deposits, telecoms and vehicle costs.
You should ask the franchisor for a breakdown of what the fees include and the types of costs you can expect. Ongoing fees that come after the initial set up are also important to consider, such as ongoing training fees, advertising and marketing.
Check out whether the franchise is a member of an existing franchise body or association, such as the British Franchise Association.
These bodies have strict qualification criteria for franchisors, so as the franchisee you know they are franchisors you can trust. Members of bodies and associations are the sort of franchises you want to be involved with.
If you’re thinking of going with a smaller cutting edge franchise and still want to minimise your level of risk, you can search Companies House for the track records of founders to assess their previous business success.
Talk to the best
Speaking to existing franchisees of the businesses you’re considering can give you an idea of the struggles they’ve faced, as well as their successes, helping you to make an informed decision.
Be careful when contacting people though and only approach those who are in the top 20 per cent of that franchise model, as they will be the best people to share their knowledge with you, meaning that one day you can emulate their success and be in the top 20 per cent too.
It may even be possible for you to ‘ride shotgun’ with a franchisee, shadowing them as they run the franchise for a few days, weeks or even months - depending on the cost of this and how friendly the franchisee is. This will give you a great insight into the business and how it operates.
Looking to the future
One thing that is often overlooked by franchisees is the geographical area of the businesses.
Some franchises, such as BBX, offer regional offices, where you are guaranteed to be the only BBX franchise within a certain area. This gives you a customer base with no internal competition.
Having neighbours isn’t always negative though, as you may be able to refer business to each other if you’re able to distinguish from one another. If you’re not given an area and more franchises open around you in the future, what impact might this have on your business?
It often seems weird to prospective franchisees when I talk about having an exit strategy before they’ve even launched their own franchise, but it’s so important and should be one of the first things you consider.
Before looking at franchise options, take a step back to ask yourself what your long-term goals are. Are you hoping to eventually sell your business or do you want it to be passed down through the generations?
Starting with your end goal in mind and working backwards can help you choose the best franchise for you.
For example, if you’re looking to sell up in five years’ time, you should be looking at the businesses with the best resale value, bearing in mind that some franchisors hold restrictions on this.
Established franchises VS newer franchises
There are many pros and cons to working with an established franchise in comparison to a newer franchise.
Established franchises give you better brand awareness and less risk, but smaller franchises offer great opportunities for success in new and unsaturated markets, often delivering a better return on investment.
To help inform your decision, speak to the franchisor about its track record with the business so far and its plans for the future of the franchise. A great business plan from your potential franchisor could make or break your decision.
And going for the most well known brand or the least risky franchise isn’t always the right path to take.