Franchising is a great way for new entrepreneurs to tap into a successful business in a short period of time.
But for some entrepreneurs, it can also be a minefield of costly mistakes - mistakes that could easily have been avoided with a little upfront knowledge and common sense. If you think a franchise might be right for you, here are just some of the mistakes you'll want to avoid.
Franchise Agreement Confusion
The franchise agreement is the instrument governing your relationship with the franchisor. It details your rights and responsibilities as a franchisee, and generally dictates the manner in which you will conduct business as a licensed agent of the franchise.
Some of the items that are usually covered in the franchise agreement include franchise fees (initial and ongoing), acceptable practices, employee conduct, geographic territory, marketing benefits, and other issues that affect your business on a daily basis.
The worst mistake you can make as a franchisee is to sign the franchise agreement without thoroughly understanding what it contains. Don't sign anything until you completely understand and agree with all the terms of the agreement.
Inadequate Capital Funding
Funding a new business requires a significant amount of startup capital. Funding a new franchise requires even more because on top of the normal expenditures, you also have to pay a hefty fee to buy into the franchise. Don't even think about franchising unless you are absolutely certain you have enough capital to get it off the ground and start doing business.
Failure to Verify Franchisor Claims
It's important to remember that franchisors are selling a product - the franchise. Like other salespeople, franchisors sometimes stretch the truth a bit to make their product seem more appealing. The best way to separate franchise fact from franchise fiction is to verify all the claims the franchisors makes, particularly those that are communicated orally rather in writing. You can do this by contacting other franchises and doing your own research to learn whether or not the claims you are told are real.
Lack of Market Knowledge
A franchise does not guarantee success. Just because a certain franchise does well in a particular region or neighborhood doesn't necessarily mean that it will do well in another. to better the odds, you should plan on doing your own market research to determine whether there is a need for the products the franchise sells in your proposed territory. Also, you'll need to know the location of the company's other franchisees and become familiar with the geographic range of their territories. It's possible you could be buying into a territory that is already saturated with franchises of the same company.
Poor Legal Advice
A franchise is a legal relationship with significant long-term implications for you and your business. You can be sure that the franchisor knows this and has received the best possible legal advice to protect the interest of the franchise. As a franchisee, you should also seek out sound legal advice to protect your interests throughout the process, no matter how amiable and down-to-earth the franchisor may seem.