Franchising is hot. It is, in fact, hot for decades.
Why would people buy a franchise unit? What make a franchise appealing?
The number one reason people buy a franchise unit is to cut his/her way into entrepreneurship.
Yes – buying a franchise brings you a few steps ahead of other entrepreneurs. While other entrepreneurs work long hour to trial-and-error their business concepts, not mentioning the amount of resources to push their ‘baby’ to grow, franchisee unit buyers cut right to the chase into entrepreneurship ‘buying’ a proven system.
That’s why franchise units are relatively expensive to buy compared to the similar, non-franchise, counterparts – Franchisors, the brand and concept owners, take the hassle out from you in return for a sum of money, often called franchise fee.
Franchisors offer you tested and true, proven, system, including location surveys, employee training, marketing and promotional tools, etc. As long as you play by the rule and utilise the system the right way, you will likely to succeed than not.
That’s amazing! I want to buy a franchise unit right away!
Whoa! Slow down, cowboy… Perhaps you have the money to invest in a franchise unit, but buying a franchise, as well as other businesses, need some evaluations prior deciding whether to take the franchise unit or look elsewhere for better options.
What you have to know about franchising
Franchising is not easy – trust me – read my previous post about it. Please also read the Episode 1 :)
Franchising is like marriage. If you turned-off about the idea of marriage, perhaps franchising is not for you.
Believe me, many franchising ask you for a private interview before you are ‘allowed’ to own one of their unit. The current trend – they ask you about your family and/or marriage life. Some of them ask you to come with your spouse.
Why is it important?
The premise is, if you manage your family right, you can succeed managing the franchise unit.
Franchising needs teamwork and the willingness to follow franchisor rules and guidelines. Franchising needs trust and respect.
If the franchisors said that direct selling is not recommended for your unit marketing campaign or a certain location is not good for the unit, then you should listen to them – they know what they talked about. They’ve been there, you haven’t.
How to Choose the Right Franchise
Here’s some tips from my experience on how to choose the right franchise:
- Don’t choose the franchise based on your hobby and interest
Choose one that is unique and answer a problem in the community. Also, choose by its ability to sustain changes and its business life cycle length. - If your felt that you can’t work well together with the franchise’s CEO, bail out of the deal
Chances are, if you can’t stand the franchise’s CEO style and habit, you can’t stand to work with him/her later on – not good for your franchise unit! - Study the financials – consider the franchise fee and royalty fee
The first things to look into a franchise financials is: the franchise fee, the length of franchise agreement, the franchise renewal free, and the royalty fee. Thus, you can calculate your monthly ‘franchise unit ownership’ fee. - If you felt that the offer is too good to be true, perhaps it is too good to be true
Franchise is not outrageously profitable – not a single franchise in my entire franchise units ownership career can achieve extraordinary results. Exceptional performance yes, but not extraordinary performance. Thus, run away from ones that offering it. - Study the company background – hire a detective!
Just kidding :) My point is, you have to learn the basic company background – the established date, the ownership structure and changes, and the reputation. - Study the franchise’s growth plan
A good franchise is one that have a written growth plan to share with potential franchisee. No growth plan written might mean no plan at all. - Does the franchise guarantee anything? Choose one that is NOT guaranteeing a certain BEP or ROI
A franchisor might offer you a guaranteed 24/7 support, but not a guaranteed break even period (BEP) or return on investment (ROI). Nobody can guarantee you anything about it – unless you deal with fortune tellers :p - Have a chat with the other franchisees
Franchisees are the most trusted source of franchise information – They won’t trick you to buy a franchise like theirs, will they? - Don’t choose a big name franchise
Choose a smaller franchise with outstanding record and ‘ride the wave’ together with them. McDonalds is uber expensive, anyway. - Don’t choose a franchise that doesn’t even have one own unit
The franchisor’s own unit is your benchmark and your measurement of success. If the franchise you interested in doesn’t have any, how can you benchmark or measure the potential of buying a franchise unit from them? - Choose a franchise that trains you, the franchisee, a lot
Good franchisors take franchisees’ personal development seriously, because strong franchisees mean strong franchise units. - Pick a franchise that doesn’t allow you to improvise too much
If your entrepreneurial spirit are freedom, no boundaries, creativity and improvisation, don’t choose franchising route – you can perform well starting up your own business. Franchising needs military-style people that can work well under a guidline.
Bottom line: You can achieve riches with franchising if you are willing to work in a family-like system that has a operating manual. If you can’t stand rules and dos-and-don’ts, don’t choose franchising.
Ivan Widjaya
The learning franchisee