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Five mistakes to avoid when buying a franchise


You’ve made the decision, you’re ready to take the plunge, now all that’s left to do is pull the trigger and throw yourself into the world of being a franchisee. 

It’s a huge step, pockmarked with exciting challenges and invigorating new experiences, but there are potential pitfalls along the way, and it’s important to know what they are before undertaking the journey to being a franchisee.

Asking the right questions and identifying any problems you may encounter along the way can make the journey all the smoother. Franchise Direct identifies five mistakes to avoid when buying a franchise.


00000181-7b54-d6a8-a1e5-7b75f4da0000 1) Not doing adequate research

One of the advantages of buying a franchise is that you are becoming part of a proven model. Before taking the plunge, it’s worth looking at how long a franchise has been established and how it has performed in good and bad economic climates.

Although the franchise model does eliminate risk in a lot of ways, no business venture is without risk – and some carry more risk than others.

In ‘Small Business For Dummies’, Eric Tyson and Jim Schell write: ‘You must do your homework, which means carefully inspecting the business you’re buying and its financial statement. You can’t take at face value how the business appears on paper in site visits.’

Visiting message boards or sites for franchisees can be an invaluable source of advice and feedback – both negative and positive.


00000181-7b54-d6a8-a1e5-7b75f4db0000 2) Not knowing your strengths – or your weaknesses

Taking that huge step towards becoming a franchisee takes courage and confidence.

It requires a real belief in yourself and the business, and an air of positivity that you will be a success. However, ignoring any potential weaknesses or pitfalls could be perilous.

In Jonathan Reuvid’s ‘Start Up & Run Your Own Business’, he points out: ‘If you are unsure of your personal strengths and weaknesses, try carrying out a mini-SWOT (strengths, weaknesses, opportunities, threats) on yourself, being as objective as you can.

Show the result to business colleagues whose judgement you respect and to your family and ask for their candid opinions. Limitations in skills are less serious than limitations in personal qualities.’

It’s also important to know what you’re good at. Ask yourself: What industries do I have experience in? What areas am I passionate about? What’s my skillset and what area would best suit it? 


00000181-7b54-d6a8-a1e5-7b75f4dc0000 3) Not being being prepared to enter a hierarchy

When you become a franchisee it's important to remember that you’re not in complete control. You might own your own franchise, but you still have to answer to the franchisor.

When you become a franchisee, must run your branch under the terms of the contract with the franchisor. Don’t forget, any bad franchisee can have a really bad knock-on effect on the franchise as a whole.

It’s not just about your own business; you’re part of a bigger chain and any bad practice can indirectly affect the entire franchise and its other franchisees in a negative way.

As is written in ‘Small Business For Dummies’: 'When you buy a franchise, you buy into a system that the franchisor has created for you. People who like structure and following established rules and systems more easily adapt to the franchise life.'


00000181-7b54-d6a8-a1e5-7b75f4dd0000 4) Moving too fast

Trying to run before you can walk can slow your progress or trip you up completely. You could eventually go on to own multiple franchise units, but getting the first one right is most important. Looking two steps ahead is dangerous.  

Having the ambition and desire to open multiple units is perfectly fine – but you have to prove you can run one successful franchise unit first.


5) Failing to ensure you have enough working capital

Identifying the amount of working capital you will need to run their franchise is fundamental. Working capital is the money you'll require to keep the franchise operating. It's obviously essential you have the funds to cover all the costs you will encounter when opening and operating your franchise.

You should also have a reserve, an amount to cover any shortfalls, forecasting mistakes or variances from your budget.

There are options when looking for financial assistance, including:

  • The banks
  • Government funding grants
  • From your franchisor

The attractions of becoming a franchisee are plentiful. The International Franchise Association (IFA) this year said the franchise industry is growing faster than the rest of the economy. Renewal rates for franchisees are 94.2 percent a year, according to a 2014 FRANdata study. 

Knowing the problems you may encounter along the way before taking the plunge can make the road to success all the smoother.

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