10 Common Mistakes to Avoid When Buying a Franchise

Jul 12, 2022 | 0 comments

Buying a franchise can either lead to great success or terrible failure, depending on how you deal with the franchise process, and whether you make the correct decisions.

Some franchise businesses have great training programs and functional support, while other franchisors sometimes do not have the commitment and enough resources. In addition, certain franchise concepts are remarkably suitable to your specific set of skills and strengths that you bring to the business which can help your success, while others may not.

Here are some common mistakes to avoid when buying a franchise:

Not looking into the available business choices

common mistakes to avoid when buying a franchise

When exploring franchise options, people are simply drawn to the attraction of the large, well-known brands, and often lose the smaller business options that could be less expensive, but still have strong financial performance.

It is important to remember that the franchise industry is composed of much more than just restaurants and retailers. Food and retail businesses constitute only a small part of the franchise market.

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Franchise options fall into various industries and may even include senior care, education, fitness, marketing, and automotive services. You will be doing yourself a favour by considering these alternatives. Many of these businesses are much cheaper than the restaurant and retail concepts, and may still be able to meet your business goals.

Not doing sufficient market research

Once you find the proper franchise, it is easy to get excited and do your market research quickly. Some franchises may appear great from afar, but may not be quite what they appeared to be once you have investigated them thoroughly and spoken to existing franchisees for market research.

Existing franchisees can give first-hand information and insights, including the reality of running the franchise and the daily duties involved, as well as a realistic evaluation of the efficiency of the franchisor’s training, support, and systems.

When exploring these options before buying a franchise, you should talk to about 10 various franchisees, and include a variety of top, middle, and lower-performers to get a comprehensive overview.

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Underestimating cash flow

It is imperative to understand that a business does not produce profits right from the start.

Often, no profits are created in the first 18 months. Because different franchises reach the break-even point in varying time periods before eventually beginning to create profits. You will need sufficient working capital, to not only cover functional expenses but also your own personal costs.

Too many people are greatly attracted to the first franchise opportunity they ask about, and don’t shop around to see what else is available so that they can juxtapose different concepts, and ensure their selected franchise is appropriate for them.

Making decisions with inadequate information

10 Common Mistakes to Avoid When Buying a Franchise

You have to ensure that you collect enough information about an opportunity before making any decisions about buying a franchise.

Doing market research will make sure that you make a rational decision before investing a large sum of money, time, and energy into the business, and that you have compared all the business choices at your disposal.

Read More:How To Become A Market Research Analyst?

The franchisor is in financial trouble

It only takes a rapid Google search to find if a particular franchisor has recently been in financial trouble. Of course, the franchisor’s prior financial problems do not mean that the opportunity offered to you is a bad one. However, you should always proceed very carefully if there is a history of financial troubles.

One thing to remember is that should the franchisor finally go bankrupt, you may end up not having any rights to run your business, depending on your setup, industry, and buying channels.

Not understanding the industry and its requirements

When purchasing a business, particularly if you are scheduling to operate it rather than be a passive investor, you must realize what it requires from you and how it will influence all aspects of your life. 

For example, if you are running a retail store, which is open seven days a week (and you are the major employee), you will be missing out on weekends with your family. Think carefully about how the business you are interested in fits in your life before buying a franchise.

Not developing yourself and others

With ownership comes an innate but frequently overlooked responsibility to develop yourself and those you employ.

Developing employees by presenting cross-training, paying conference expenses, and providing opportunities to learn skills such as meeting planning, designing surveys, or building incentive plans make fidelity and increase job gratification.

Increased fidelity and job gratification are morale boosters that trickle down through the ranks and help the bottom line by decreasing staff absenteeism and turnover while increasing efficiency at the same time. As customers, we know that pleased employees attract new clients. However, it doesn’t stop there.

Franchisees should also continue their education. Consider it as getting out of the box in order to think out of the box. Participate in annual or bi-annual franchisee meetings or industry special conferences and read a minimum of one business book a year. This habit renews perspectives, increases incentives, and helps franchisees resolve annoying frustrations.

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Failure to engage

10 Common Mistakes to Avoid When Buying a Franchise

Like trust and relationship building, engagement has drawn the attention of seminar speakers, business writers, and human resource experts.

If we apply a basic 80-20 rule, then anywhere from 10-20 per cent of franchisees are unwilling to engage. These are the investors who craved the business to be (figuratively) in the box.

Without engaging with your staff, customers, local community, and franchisor, your business will not be successful in the long term. It may succeed for a few years, but the happiness of being part of something meaningful and making the kind of money you dreamed of will be inaccessible. Finally, the unengaged franchisee will wind up in a very dark pit.

When it comes to making the big decisions in life – like purchasing a franchise – the answers don’t usually come simply. Whether you’re considering ownership or are in the early years of your franchise escapade, know that there will always be problems and people in the industry who want to assist you to become as amazing as you want to be. It’s well worth the effort.

Weak skills

Having a big franchise name can aid attract new customers; however, if you don’t hire the right people or have the right supervisory skills, things can worsen fast.

Running a successful franchise depends on the people engaged, and if you don’t choose the right managers, a weak environment can develop, resulting in a lot of unhappy customers. Successful franchise owners will be active, making an environment where everyone can win.

Every year, more than 200 franchise names hit the market, and unfortunately, 25 per cent can’t make it to their first year anniversary. If you’re attracted to a franchise, make sure to research as much as possible to become certain that it suits your lifestyle. When buying a franchise, as long as you do your homework, there’s no reason you won’t be successful.

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Buying the hot franchise

Buying the hot franchise

You have possibly seen the magazine or Internet ads stipulating the next greatest thing is coming to your city and all you will require is a simple $100,000 investment to capitalize on this “trend”.

While most people follow the herd and buy big-name franchises, some people often go off the track and take risks on an up-and-comer. This can be a trouble, however.

For starters, this trendy franchise can be a failure in five years. Secondly, just because it seems like a wonderful opportunity to you, it doesn’t mean it will be to someone else. Make sure to look at the full picture and dig into the long-term potential to see where it may be in the future.

Some minor mistakes before buying a franchise

Not getting advice

When buying a franchise, not getting advice from an accountant and a solicitor may be your loss and one of the biggest regrets you will ever have. Financial figures need to be certified, projections analyzed, and predictions and budgets created. Legal documentation requires to be examined and explained to you so that you realize what you are signing up for before it is too late to get out.

Being attracted by the flashy advertising and promises of big returns

Many franchise systems will advertise their business option by employing glossy marketing brochures with promises of great financial profits. Although in most cases the promises are justified, you must substantiate all the financial data provided and do your own calculations, evaluations, and forecasts.  You must assess all the promises made and examine the information to the best of your ability and that of your advisers.

Read More:When Do You Need To Hire A Business Lawyer For Your Small Business?

Explore failures

Irrespective of how big this franchise is, there’s a good chance that there have been failures in the past. Look into a local franchise that has not been successful in the past and try to realize what occurred. Usually, you should be able to find the previous owner’s information by either calling the franchise or looking through business records at your local government office.

When you get this information, see what the owner had to say. If you’re discussing a lot of failing businessmen and are hearing the same story, then it may be something to keep away. Like talking to active businessmen, you will crave to do the same with failing ones as well.

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