How to Start Your Own Franchise
Ever think about having your own 7-11 or Burger King? So do millions of other people, but having your own franchise may not be the get rich quick scheme you think it is. Before you sign on the dotted line there are some things you should know first.
Seven Things to Know about Franchises
Before you purchase your slice of the American business dream make sure you have all the facts first. You may be surprised how expensive it can be to have your own 7-11 for example. Here’s what you should know.
What is it going to cost me?
What are my other expenses Likely to be?
What restrictions are there on suppliers?
Can someone else open up the same store in my area?
What are the expansion opportunities?
What is the average success or failure rate of new franchises?
If it’s not working out, how do I get out of the deal?
The first questions that are usually in the forefront of most people’s minds are how much is it going to cost me upfront? Obviously the more successful ones are going to cost more. Don’t forget about the ongoing expenses though.
Is the franchisor going to require you to lease the property from them? Do you also have to lease the equipment as well? Some franchisors require you to pay them a percentage of your annual sales. Don’t forget about staffing. Can you rely on family members to run your franchise or are you going to have to hire outside the family?
These are all expenses that you need to factor in before you sign on the dotted line and they can be difficult to calculate. This is an area where you may want to get the help of a financial planner; one who is familiar with franchises and the expenses that are involved. You may be saving yourself from making a costly mistake.
Some franchisors will expect you to buy your supplies from certain suppliers so they can get a kickback from them. If you are required to do so you may be paying a lot more than normal for your supplies. It helps to know how your franchisor is making his money. If you know what motivates him/her you can anticipate your expenses easier.
Then there is the question of competition. After you got your Starbucks set up, can someone else set up his Starbucks right across the street from yours? Do you have any protections in place so that other people can’t set up shop in an area that is in direct competition with you?
Some of the most successful franchise owners are so successful because they have expanded their empire and cover entire areas so there is no competition to speak of. As a franchise owner, are you given first choice on acquiring new franchises in your area or can anyone buy the next one that opens up that would be in direct competition to yours?
Years ago the wisdom was that you had to have enough money to bankroll your new business for two years before it would begin to at least pay for itself. Things have changed over the years so it’s a good idea to get the most current statistics on the successes and failures of franchises. The more specific you can get the better.
Rather than knowing the general failure rate of all franchises, why not get the numbers for your specific franchise? If you’re buying a 7-11, what is the success/failure rate of 7-11’s? You should know how many franchises close their doors each year and those who sell out each year. That way you get the full picture. Just knowing how many close their doors is just half the picture when it comes to success/failure rates. The more specific your information the better.
You should also know what provisions are in place for you to bow out if things are just not working for you. Will you be allowed to sell your franchise and if so, can you sell to anyone you like or do you have to sell back to your franchisor? Are there any fees involved with you getting out of the business? No one likes to think about what if they fail, but you should know where you stand before getting into business. Many businesses fail so you should have a plan B in place should yours fail one day.
Look before you Leap
Like the old saying goes, get all your facts together before taking the plunge. The more you know and the more specific your information is the better prepared you will be and one of the main keys to successful business ownership is preparation. Do your homework and you could be saving yourself from making a huge mistake, or on the other hand, setting yourself up for a huge success story.
Lauren Thomas is a professional blogger that provides information on getting started in investing and buying a franchise. She writes for BeTheBoss.ca, where you can find the top franchise opportunities in Canada.