A franchise program makes it easier for those daunted by the idea of starting a business from scratch. How does this arrangement work? Well, a franchisee (investor) will acquire the rights to distribute goods and services as well as use the name of the franchisor (established brand) for an agreed period.
Many who are new to entrepreneurship find investing in an already established business model a safer bet than starting out on their own. A franchisor will, among other things, provide training and support throughout the franchise’s life, but the franchisee will have to do their bit to make the investment successful.
Before you invest, ask yourself these questions.
What Are Your Goals?
Before you dive into entrepreneurship, you want to ask yourself what your personal goals are and where your passion lies. An already established brand has a smoother growth curve when compared to starting from scratch. However, you have higher chances of success if you invest in a business you are passionate about and one that will contribute to your personal growth.
It also helps to have entrepreneur skills, not necessarily geared towards a particular industry, but skills that can cut across the board. Marketing is particularly important in driving a business’s success.
How Much Capital Do You Have?
Initial capital outlay may be anything between $10,000 and several million dollars. The franchisor will base their cost on, among other things, training fees, support, and licensing rights. After you have identified the industry you want to invest in, you want to look at the cost critically, bearing in mind that you will need more money to get started and to run that business until it breaks even.
Is There Demand In Your Locality?
How is the demand for the service or product offered by the franchisor in your locality? Your concern is not only the current market but long-term expansion plans into other areas. You do not want to compete with every other local enterprise for your market share, but you also don’t want to invest in a business that will take years to break even. Research is an important part of the process especially when you are buying into an international franchise.
What Is The Track Record Of Established Branches?
Having decided on the industry to invest, you want to look at the track record of established branches. What is the general performance at least in the main brands? If you can access financial records and information of how long it took the branches to break even, it would help a great deal.
With this information, you may want to think of ways to outdo your competition. Are there ways to market yourself better to penetrate the market faster or can you take advantage of technological advancement to perform better?
What Does The Future Hold?
What is the future of the industry? Technology is rendering several industries obsolete, and so you want to invest wisely lest you fail to achieve your goals before the franchise period lapses. This will also determine your exit clause, seeing as you will want to recoup your investment once the franchise period expires. You may want to reach out to other selling franchisees in the industry to hear their experiences.
What Are Your Qualifications?
As much as franchisors offer training and support, you still need to have some understanding of the industry. Before choosing your trade, gauge your capabilities to run the new business and even shadow a CEO of a similar company if possible. Ask yourself what you would do to be more profitable and how you would use technology to market yourself better.
Before investing, remember that the franchisor controls policies and model of the business and so you are only the boss to a certain point. If that idea does not appeal to you, you may not like the route you are about to take.