What you should look for when setting up a franchisee business

What you should look for when setting up a franchisee business? |
17 Dec 2016

What you should look for when setting up a franchisee business?

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It is very crucial once you decide to take the franchisee and start as an entrepreneur, How to select a right partner?  Such a decision needs a lot of guts and ability to take decisions.

The first important question that you must ask yourself is, “Do I want to start my own business or should I start something with a reputed brand by taking their franchisee?”

As with any new business venture, you need to carefully consider whether you have the right skills and attitude to run a successful franchise. Analyzing your own temperament can also help you decide which type of franchise would be right for you.

Assess yourself

  • Some of the successful franchisee business demands you to work hard, probably for long hours. Do you have the necessary stamina?
  • Running your own business can be quite stressful. Think, how you would react to such pressures. Are you up for it?
  • You may be starting up in business because you want to be your own boss. If so, would you be happy with the restrictions imposed by a franchise arrangement?
  • Some of the Franchisee businesses require heavy investments? You have to assess your investment capacity and choose accordingly.
  • You should have sufficient working capital to support till it starts breaking even.

The most important thing

Choose a franchise business that you’ll enjoy

Buying a franchise that you will enjoy is the most important factor of all. Most businesses – all types of business, not just franchises – succeed when the owner truly enjoys the products and/or services that the business provides.

Research the best franchises

There are thousands of different business franchises, and there will be more than one and perhaps many in your chosen business area. Once you have made the decision to buy a franchise business it is difficult to turn back.

  1. You can do a survey by meeting existing franchisees. Visit the area where you wish to start the business and do a market research.
  2. Check with the competition and get some data from social media.
  3. Check the background of the management. Check their values and track record. You must meet with the management or senior level staff and understand their commitment towards the business and their expectation from the franchisee and what support they will provide.
  4. You must not take a decision base entirely on the opinion of existing franchisee’s positive or negative opinion. It has to be completely based on your own judgment.
  5. Find a franchise that offers the support you need in the area you are weak.

Assess the franchise opportunity

To assess whether a franchise represents a sound business opportunity, you’ll need to consider:

  • What is the business all about and how it operates –
  • Can you use a recognized brand name and trademarks?
  • Will you benefit from any advertising or promotion by “franchisor”?
  • Which is the location of the franchise?

– check whether the location has enough potential of business. You usually have exclusive rights in your territory. The franchisor won’t sell any other franchises in the same region, though there will be competition from other businesses.

  • What support is provided by franchisor

The franchisor generally provides support in the form of training, help setting up the business, a manual telling you how to run the business and ongoing advice.

  • Is it a successful concept? the number of franchise opportunity for classes and how financially successful they are. You can check how successful other franchises are before committing yourself.
  • The strength of competition from other brands
  • How long the franchisor – has been in business and how financially secure it is. How long has the company has been offering the franchise?
  • What are the levels of initial and ongoing costs?
  • How much training and support you will get in setting up and running the business

Look for a good business profit model

Successful businesses – not just franchises – are always based on a sound and healthy business and profit model. You must check the ROI. Evaluate the financial business proposal and get them to explain it. Do you study and make a set of queries that they need to answer.

Understand the financials

What is the level of investment and what do you get for it – is it good value? Or is it all smoke and mirrors?

How long will it take you to recover your investment – in other words, what is the payback period – how quickly will the franchisee realistically and reliably get into profit? This is a crucial indicator and one which you must understand and be assured that it is acceptable and achievable before you buy any franchise.

What are the running costs of the franchise? – Some will be fixed overheads, (such as rent of the premises, franchise fixed royalty fees, staff salaries  advertising, printed materials, training, etc  ) some will be variable ‘cost of sales’ dependent on your sales levels and volumes (such as materials ); Get a clear idea of what these costs are. Be able to see and understand them over a year, broken down month by month.

What working capital will you need? – This is the amount of money required for the business running costs, including your own salary(ies), before the business begins to make a profit necessary to fund itself and your wages.

What borrowing or loan arrangements are required, and can you afford the repayments, given the working capital requirements of the new business, and the rate of expected business and profit growth?

Do I have other priorities in my life? In just about every franchise agreement I’ve seen, there is a clause requiring you to devote substantially all of your working time to the operation of your franchising business for English speaking. Retailing and restaurant franchises, especially, involve grueling hours on evenings, weekends and holidays. If you are thinking about doing a little bit of consulting on the side, pursuing a cherished hobby or spending more time with your family, your hopes may be frustrated.

Once you have decided to take franchisee of a particular brand then you have to surrender to the brand completely and follow them, implement all that they ask you to. The success of franchisee is possible through hard working under the guidance of franchisor only.

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