10 Mistakes to Avoid When Investing in a Franchise

Franchise Planet - Considerations of Franchising

10 Mistakes to Avoid When Investing in a Franchise

Now more than ever, more people are discovering the benefits of franchising as a means of business ownership. There are over 1,000 franchises in the UK, each with anywhere from one or two to several hundred franchisees. Franchising is a growing phenomenon for people looking to get into business for themselves but not by themselves, and the supportive framework of franchising is one of the catalysts of its demand. With so many attractive franchise opportunities out there, franchising is a comfortable option for anyone looking to ditch employment and regain control. From affordable business models like pet franchises to mobile coffee businesses, through to high end franchise opportunities like fast food and high street retail, franchising truly offers something for everyone.

But being such a lucrative sector, it is easy to get carried away, diving straight into the deep end. Whilst franchise business opportunities are considered by many, as safer than starting up alone, entrepreneurs looking to get into franchising should take care not to fall into any of the pitfalls people do often make.

Let’s take a look at ten top pitfalls, mistakes to avoid, when investing in a franchise UK.

1. Choose The Right Franchise

When you go job hunting, you’ll likely pick a job that you’ll enjoy. Enjoying a business and having motivation go hand in hand and lead to success and the same is true of investing in a franchise. You should invest in a franchise that you will enjoy and see yourself running five, ten maybe even twenty years down the line.

Although it can be tempting to nosedive straight into one of the more lucrative ones, sometimes it is a good idea to start out small. Vending franchises are a good entry point into the world of franchising. If you have a passion for business ownership and fancy a business where you’re meeting people, vending opportunities are generally low cost. They’re scalable too, meaning the more you want to earn, the more clients you can take on, all the while your overheads are at a minimum. You may want to run this alongside an existing part time job, while your comfort builds in the world of business ownership. Once the franchise agreement is due for renewal, you may choose to sell the business and invest in a more profitable pursuit.

2. Make Sure You Have Enough Capital

When investing in a franchise, there will be several costs involved. Most people will immediately assume that the initial investment is all they require, but it is not. Ongoing you will need to set aside working capital. Money that you will use to keep the business operating until you break even, and get a return on your investment.

Remember that subject to your finance history and having a good business plan, many banks can lend up to 70% of the franchise investment. So don’t think that you need to have the entire investment ready to invest. Make the most of the funding available to you, and set aside the rest as working capital.

The amount of capital required will depend on the business. A mobile coffee franchise will require capital to cover coffee and consumables, hot water, fuel, the like.  Speak to the franchisor to get an understanding of where the profits and losses happen.

3. Take Advantage of the Supportive Framework That Is Franchising

The biggest reason people choose to invest in a franchise to get into business ownership is because of the support available to them. The investment will usually cover everything you need to know, from training in finance, business operation and day to day running, through to ongoing support covered by the management service fee.

A good franchise will offer its franchisees a comprehensive initial training programme, along with ongoing support materials and possibly even regular conferences. You should, as a franchisee, make sure you’re making the most of these. By attending conferences, seminars and webinars, you can learn more about what fellow franchisees are doing and how to keep up with the latest market trends.

Investing in a franchise means you’ll be in business for yourself but not by yourself – don’t miss out on the support available to you. Franchise consultants, franchise lawyers and franchise associations are all available to you to help you within the world of franchising.

4. Make Sure You Follow The Rules

The franchise operations manual is a franchise document which exists to ensure all franchisees follow the same system. This document will include elements like business branding through to operating the franchise. In the fast food sector, this operations manual might cover the products offered through to health and safety. The “ops” manual tells franchisees how to run the business in unison with other businesses. Head to any McDonald’s franchise and you’ll get the same service, the same products and the same offers as anywhere else. Operationally, franchises will follow the same principals of function. This consistency is one of the factors that ensures a franchise’s success.

Failure to follow the rules takes you closer to the mistakes you would have made if starting up a business alone. Don’t take the franchisor for granted. They themselves would have made mistakes when setting up the business. The rules are in place to ensure your success.

5. Use a Franchise Consultant or Lawyer

Work with a franchise consultant or lawyer and thoroughly check the franchise documents – especially the franchise agreement. You will likely be required to sign an NDA before you can access this document.

The franchise agreement defines the relationship between the franchisee and the franchisor, and ultimately, when you sign this, you agree to abide by the rules set out by the franchisor. The agreement may also reference the “ops” manual, binding you to follow this operational document. The franchisor cannot change the agreement that you have signed, but they can change the operations manual, and if the agreement references the “ops” manual, you should sign it with caution. You may end up finding yourself later taking on extra work or accepting drastic changes in the business model’s operation.

However an “ops” manual shouldn’t change that much drastically, anyway. It has been prepared based on a proven system of operation. Drastically deviating away from this could have major consequences for the entire network.

A good franchise consultant will know the franchises they work with inside out. As well as franchise consultants helping a franchisor franchise their business, they will be with franchisees every step of the way too. You should speak to a franchise consultant (or franchise lawyer if the franchisor isn’t working with a consultant), to get to grips with the documentation.

Make the most of the support. The consultant will not usually charge you for their services. It is in the consultants best interests to help the franchisor’s network grow. The franchisor pays the consultant to help profile and recruit suitable franchisees, not you. Their help is at your disposal.

6. Don’t Deviate Away From Your Business Plan

A business plan should be your step-by-step guide to success. It will be a plan of how you will set up and run the business ongoing. If you leave this route to success, you’re setting yourself up for failure.

7. Don’t Ignore The Importance of Marketing

Although the idea of a franchise network is to build reputation, you need to establish the business on a local level. The business won’t market itself. Your franchisor will often help you by either:

  • Setting up a page on their website for your franchise territory so customers can find you
  • Set up a localised PPC campaign
  • Set up social media pages
  • Provide you with starting stock for leaflets and flyers

It will be your responsibility to ensure this is carried out and maintained on an ongoing basis. Either you or someone you hire, can help manage the marketing of the business. Working capital that you have set aside, as in point 2 above, will help cover for marketing and establishing the business.

As part of your due diligence find out exactly what sort of marketing the franchisor provides. You can’t start designing things yourself without the franchisor’s approval, as it needs to be in-line with the operations manual and branding guidelines.

Remember, you will know more about your local franchise territory better than the franchisor. You should use this knowledge to best position the brand in your area while using the marketing tools available to you.

8. Manage Your Workload

One of the benefits many franchisors advertise of their franchise opportunity is an “unlimited earning potential”. While this is true of many franchises, you should take care not to overdo your workload. In the short run, taking on as many clients as possible may sound like a profitable pursuit, but as time goes on, you may find yourself burning out and struggling to stay motivated.

Ensuring you well balance your work and personal life can keep the business enjoyable. Make sure that you diarise your clients and block out periods where you can take some time off to relax. This is true of businesses like gardening franchises and oven cleaning franchises for example, where you might find yourself serving clients back to back. Be sure to allow for breaks during the day so that you don’t tire yourself out. Even with some reasonable slack during your working week you can still enjoy a healthy and profitable workload. 5-6 oven cleans a day at 90 minutes each (9 hours), at £75 each, nets you over £300 a day, £1500+ on a 5 day working week. For many business owners, that is a satisfying turnover and doesn’t overdo it.

9. Don’t Think You’re Infallible

Don’t be shy about searching for advice or even speaking to other franchisees. Everyone in the network would have been in a similar position as you when starting out in franchising. No matter how much education or experience you have, each business is unique and you should take the time to understand it and how it works.

10. Don’t Expect The Franchisor To Do Most Of The Work

Whilst the franchisor owns the brand and the business model, the franchisee owns the individual businesses. Whilst it is the franchisor’s responsibility to carry out national marketing that benefits the entire network, it is the franchisee’s responsibility to market the business in their own local area to ensure its success.

You shouldn’t expect the franchisor to do the work for you. They will provide you with the training and support that you need to carry out your own duties effectively and efficiently.

In Summary

As with anything in life, failing to prepare means preparing to fail. Investing in a franchise is a big life decision, and for many, it has been a decision they would never go back on. You need to make sure that you spend the time researching the market and demand for a particular business before you invest. When you become a franchisee, you’ll be granted the rights to trade within your own exclusive territory. A territory no other franchisees of that brand can trade in. It doesn’t mean other businesses can’t offer the same services you are, for example oven cleaning, so you do need to spend the time exploring the market. Find out what is in demand and what is already supplied. Competition with other businesses isn’t necessarily a bad thing, because it shows there is already demand.

A sizeable franchise network will have more power over these smaller individual businesses, thanks to the group marketing the franchisor is able to carry out from the money paid by franchisees ongoing. You may even be able to provide a better service at a better rate for clients. Remember that one of the benefits of a franchise is the group purchasing power. Access to the franchisor’s products, services and partners at a better rate than what individual businesses would have access to. Take the time to explore the franchise opportunities out there, and take the time to establish what demand there is for a business you can see yourself running. Franchising offers a lot more freedom over employment, and it is a much safer route to business ownership compared to starting up alone. Take a look around Franchise Planet and browse available franchises for sale.

Image: Headway (Unsplash)

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