12|22|2021

Things to Avoid When Buying a Franchise: Six Common Mistakes

There’s a great deal of power in small businesses—small businesses are a critical part of our country’s economy. And for franchisees, business ownership can be a ticket out of the corporate world. The impacts of establishing your own franchise have ripple effects that are felt throughout the entire community. Just how can a small business make a difference?

  • Between 2000 and 2019, small businesses created 10.5 million jobs in the U.S.
  • $48 out of every $100 spent at a small business stays local.
  • 37 percent of Americans have decided to support local businesses. 

But how can you ensure that when you are investing in your own franchise that you are going about it in the right way? How can you ensure that you are gaining the freedom and flexibility that a franchise can afford you? 

Here’s what you need to know before you buy a franchise to ensure you’re setting yourself up for success, financial freedom, and total flexibility.

Mistake #1: Buying a Business Aligned Solely with Your Passion

Fifty-five percent of business owners report that their biggest motivating factor for starting their own business was that they wanted to be their own boss, and 39 percent said they wanted to pursue their passion. While focusing all of your efforts on nurturing your own business can help get your franchise off the ground, it’s also important to have a plan. 

Some business owners make the mistake of following their passion without having a clear strategy in place. They select a franchise they are passionate about, solely for the purpose of pursuing their passion.

Don’t get me wrong, this doesn’t mean that as a franchisee you can’t invest in a business that makes you truly excited. But choosing a franchise also requires a solid investment strategy you can feel confident about. In the same way that a financial advisor helps investors navigate the financial markets, a franchising coach can help you establish a game plan, which can make all the difference in finding the right franchise to purchase.

Why is this so important? Because you want to select a franchise that aligns with the successes you hope to achieve. Remember: It’s about selecting a brand that will grow with you to full business maturity. You want to invest in brands that will help you meet these goals.

Don’t get hung up on brand names or passions—stick to the numbers. (We can help you develop your franchise ownership plan. Give me a call.)

Mistake #2: Following Trends or Chasing the Next “Hot Concept” Because It’s Hot in the Moment

Just because a particular franchise brand is popular or growing quickly does not necessarily mean that it’s the right fit for you—or that it will always translate into a good business for you to own and run if you are looking for a franchise that will deliver financial freedom and flexibility over the long haul. 

A hip, current franchise may not have a viable, long-term business model that will give you independence, confidence, and security. Public opinion or tastes can change. Instead of selecting a franchise brand that is popular now, I recommend that you search for one that will serve you in the long term. 

(Need help understanding whether a particular franchise could fall into the “fad” category? Schedule a call with me.)

Mistake #3: Overestimating What Your Franchise Will Do for You

One of the most common mistakes that franchisees make is that they assume that the franchisor will provide everything for them. When you are investigating potential franchises to invest in, you want to discover what kinds of supports they have in place. How sophisticated is the established system the franchise is asking you to follow?

Some franchisors give you plenty of detailed information and data, helpful marketing strategies, and all kinds of support to help you build your team and grow your franchise, which can be helpful as you seek to find confidence in the brand you’ve chosen. What kinds of things should you look for?

  • Financial assistance and/or financing options
  • Location selection advice
  • Training and operations manuals and guidance
  • Advertising and marketing
  • Ongoing support including human resources, technical support, help hotlines for things like employee issues, insurance requirements, and operational guidance

Before you buy any franchise, ask plenty of questions about what the franchisor will provide for you and leave no stone unturned. This is your chance to discover what your franchisor can do to support your endeavors as a business owner. 

(If you would like to know more about what questions to ask, schedule a call with me.)

Mistake #4: Underestimating the Capital Required to Become Profitable

Do you have your eye on a certain franchise? Do you know how long it will take before your business becomes cash flow-positive, or before it turns a profit? Don’t panic! When it comes to franchising, you can get easy access to this information, and a good coach can help you find it (and a great coach will recommend that you never skip this step!).

Thanks to the Federal Trade Commission (FTC) and Franchise Disclosure Document (FDD) regulations, it’s simple to figure out the cost to open a franchise. According to the FTC:

“The Franchise Rule gives prospective purchasers of franchises the material information they need in order to weigh the risks and benefits of such an investment. The Rule requires franchisors to provide all potential franchisees with a disclosure document containing 23 specific items of information about the offered franchise, its officers, and other franchisees.”

But what this FDD document does not always tell us is how long it will take before your franchise will break even or turn a profit. This requires not just seed money to invest in the initial purchase, but also working capital to become profitable. The good news is, with franchising, there’s a precedent. When it comes to franchising, you can look at existing data and figure this out with good guidance from a coach who understands the ins and outs, and can help you sift through this information. 

Mistake #5: Relying on a Single Source of Information Before Investing

Too often, franchisees only talk to one voice before they invest, which means they aren’t getting the whole story. 

My take? The best part about franchising is that there are a lot of resources available to tap for research into a particular brand—by asking the right questions and interviewing the right people, you can get a clear view of the full picture of owning a particular franchise.

Because there are multiple owners in a franchise, there are also multiple sources of information for potential franchisees looking to get a fair, balanced education about the opportunity in front of them. Before investing in a franchise, entrepreneurs should:

  • Talk to the franchise sales team and discover what support they offer
  • View the Franchise Disclosure Document to get a clear financial picture of the brand
  • Conduct interviews with real franchise owners to hear their take on what it means to invest in the brand.

Interviews with franchise owners are your best source of information to get a real take on the value of being part of the franchise. This will give you a more well-rounded understanding of the franchise from a brand perspective, as well as the financial health of the brand and what it means to manage a franchise in the day-to-day operation of the company. 

(Would you like a fresh perspective on your upcoming investment? Chat with me.)

Mistake #6: Underestimating Your Ability to Grow the Business

When you invest in a franchise, you enter into the world of business ownership. Some franchise brands help you generate leads for your business, but at the end of the day, it’s up to you to grow your business. This means that you should plan to manage:

  • Building customer awareness
  • Generating leads
  • Building strategies to convert leads into paying customers

One of the biggest perks of investing in a franchise is brand recognition. But it’s also your role as the owner to acquire customers quickly and effectively and understand how your franchisor will support you in this endeavor. You get to dig deep into the tools your franchisor provides to acquire new customers—don’t forget to make the most of these resources! 

Some franchise companies have done a great job of understanding the importance of social media and lead generation technology. As the franchisee, you gain access to the lead generation tools your franchisor provides—the ones that can help you grow your business more quickly than an independent business. After all, this is one of the biggest perks of running a franchise. 

Being a business owner is fulfilling, but challenging. Schedule a time to discuss your obligations as a new franchise owner.

Get Support to Make a Wise Investment

In short, if you are going to invest in a franchise, have a plan. Ask good questions. And most importantly? Connect with a franchising expert to help you navigate the whole process. 
I have been where you have been. As someone with years of experience managing multiple franchise brands and helping others find the right franchise match, I’m here for you. To learn more about how we can work together, schedule a call with me today.