Careful care and consideration are required when evaluating most new business opportunities. This is especially true when it comes to choosing the right kind of franchise opportunity to invest in.
Too often, however, prospective franchise owners make costly errors and mistakes, sometimes with significant consequences for their professional success and personal happiness.
When considering which potential franchise opportunity is right for you, avoid repeating the mistakes of others and be sure to steer clear of these three pitfalls.
Don’t decide on a franchise without doing your due diligence
It’s not a lot of fun doing the work required to properly research a potential franchise opportunity, but a few days of dedicated research could save you from a whole host of headaches later, so don’t skimp on the due diligence before making a decision.
This process should start with a thorough and careful reading of the Franchise Disclosure Document, which tells you everything you need to know about costs, fees, legal obligations, and many other important and essential issues. Make sure you’ve read this and understand it all before going any further.
Next, you’ll also want to talk to other franchise owners, past and present, because they’ll give you the straight goods on what it’s like to work for Franchisor X. Try to contact a solid cross-section of the franchisee community, including newer and established owners, those with single locations and those with multiple locations, as well as some who are succeeding and some who are struggling.
Finally, take some time to consider the broader industry your potential franchise operates in, what it’s all about, and where it’s going. What will the landscape look like in 10 or 20 years, or whenever you might be thinking about selling? What kinds of positive trends or negative headwinds might affect business outcomes? How well is the franchise, and the industry, aligned with your personal attributes and values? Fit is important, and is overlooked at your peril.
Don’t get stuck inside your comfort zone
You may be tempted to restrict your franchise search to a business or sector you already have some knowledge about, or possibly even a passion for. However, the hard truth is that neither of those things is any kind of guarantee of business success. Far more important will be your own commitment and attitude, and the popularity of the franchise model you end up involved with.
With this idea in mind, you should open up the potential avenues for franchise ownership far more widely and consider a range of profitable opportunities that might have never crossed your mind before. Don’t get discouraged by your lack of expert knowledge in an exciting opportunity – you can learn the ropes from your franchisor or other experts, including some you might hire as staff.
Make sure the money works
Even if you’ve read the disclosure documents and know how much money it will take to get a franchise opportunity up and running, you’ll want to build a bit of wiggle room into your financial planning to account for operating expenses, unforeseen costs, and the time it takes to get a new franchise off the ground and begin turning a profit. Experts typically advise ensuring you have enough cash to cover anywhere from 15 to 100 percent above the expected operating costs to avoid winding up in an early hole and putting your fledgling franchise on a path to failure.
Finally, when assessing your financial situation, it’s also wise to understand how you might access additional capital if necessary. Is there a financial institution you work with that offers loans and lines of credit to businesses? It’s helpful to know where to turn, and what to expect, before the need for financing arises.