Questions to ask when buying a franchise

If you're looking to become a franchisee and manage your own business, there are several questions you need to ask yourself before signing any contracts. While some franchise arrangements may seem so appealing that it’s difficult to stay patient, planning and preparation are essential if you're to make the business work.

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Here, we take a look at six questions you need to ask yourself before buying a franchise.

1. Do I have the right skills to run a franchise?

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If you’re buying a franchise, it's essential to know whether your skill set complements the business and industry you’re entering. This usually isn’t as easy as it sounds. In many cases, an individual will choose to enter an industry that they think suits their interests and abilities, without realising the true nature of the job.

For instance, a new franchisor with a passion for digital technology and computing might decide to open a franchise that specialises in selling low-cost, high-quality computer parts. Their keen interest in digital tech seems to suggest that they're ideally suited to the business, and their extensive knowledge of computers puts them at an advantage.

However, the primary means by which the franchise sells their parts is via sales calls. Unfortunately, the franchisee doesn’t have the required time and skills to perform the role well.

When it comes to making sure your skills match those required by the franchise, it's essential that you understand what the position consists of and what will be required of you. After all, it’s just like applying for a job. You shouldn’t let a dreamy vision of being your own boss blind you from the realities of going it alone in business.

2. Can I afford the franchise?

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When you’re looking at financing your new franchise, it’s essential that you perform thorough financial tests to ensure you'll be able to afford the investment.

While most franchises will provide you with figures for minimal personal investment and an approximate start-up cost, you'll require much more significant capital if you're to navigate the early stages of business successfully.

Though they sometimes succeed immediately, most franchises require a few months or even a year before they begin turning a profit. This means that they have to be able to continue operating at a loss (or breaking even) for this initial period.

To do so, franchisees are going to require additional funds to support the business through these challenging early stages. These can be generated in the following ways:

• Bank loan
• Government small business loan
• Personal savings
• Borrowing from family and friends

Whatever route you go down to finance your franchise, you need to give yourself plenty of breathing room when it comes to costs. What you don’t want is to be operating on razor thin margins during the turbulent early months.

3. Can I trust the franchisor?

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Any franchise that’s worth investing in will be completely open and honest with potential franchisees. This is essential when it comes to investment figures, licensing agreements and the franchise contract.

A franchise that has little to hide is one that offers an attractive business proposition in its own right. Those that do choose to make access to information difficult are far more likely to be concealing something that may diminish the appeal of their franchise.

How to get the right information

As well as requesting all the information you require from the franchise itself, it's also possible to conduct research online. There are several websites where ex-franchisees discuss what it's like working with the franchisor and it’s also possible to find the contact details for existing franchisees, too.

All of this is valuable information that may help you decide whether a franchisor/franchisee relationship is likely to work.

British Franchise Association (bfa) Accreditation

The best way to find out for sure that a franchisor isn’t trying any tricks is to check that it is bfa accredited. The bfa is a seal of the approval in the British franchising industry that stands for fairness, value for money and ethics.

If a franchise has bfa accreditation, it has been independently audited by professionals that specialise in finding hidden catches and loopholes in franchising agreements. If you’re looking for more information, the bfa website has in-depth information on all of its approved franchises across a range of industries.

4. What is the state of the industry?

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Businesses don't exist in a vacuum and success isn't dependent solely on hard work and management skills. There is an enormous array of factors that can impact on a business' success, many of which are entirely outside of the control of a franchisee.

The most significant of these factors is the broader economic context. That means you need to be thinking about what the trading conditions are like in your chosen industry and if there is room for a new market entrant. You also need to be considering if this is a sector that is growing or contracting, and whether it has the legs to sustain consumer interest going into the future.

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The health of the economy

Investing in a successful franchise is a big commitment. To make sure you’re making the right call, you need to be thinking about whether the economic conditions are there for your business to fly. During recession periods, it is more difficult than ever to navigate a business through those difficult opening weeks and months.

If you invest in the wrong business at the wrong time, there’s nothing you’re going to be able to do to make it work. Successful franchises make the most of favourable market conditions, so it’s vital that you do your research and get a grip on what’s happening to the economy as a whole.

5. Will I find franchising rewarding?

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If you're going to head up a new franchise, you're going to have to commit to growing the business over a relatively long period. This means that you need to be sure that you're going to enjoy running the franchise for the duration of your ownership.

It takes a specific type of person to both succeed and enjoy working within the franchise model. It also takes a particular kind of person to enjoy running a new business. Let’s have a look at the common traits found in successful franchisees:

• Drive. If you want to get anywhere in business, you need the resolve to achieve sales results, secure buyer confidence and get deals over the line. It’s no different in the world of franchising, where you are going to have to stay committed to the business model if you want to achieve long-term results.
• Patience. When you invest into a franchise, you’re going to have to wait a few weeks or months before you receive a return. The most successful franchisees are those that are willing to sacrifice resources in the short-term in order to yield long-term success.
• The ability to think ahead. To be successful in franchising, you also need to have the same foresight when it comes to making important decisions. Every call you take – from recruiting employees to considering expansion – needs to be determined by the implications it has for the long-term health of your business.

When considering the answer to this question, it’s important not to conflate the enjoyment of your product with the enjoyment of business management.

For instance, a new franchisee may open up a sports franchise selling equipment because their greatest passion is sports. However, running a new franchise usually means long working hours, and there's a high likelihood that – by opening a sports store – they'll end up spending far less time playing sports and far more time managing the business. When you ask yourself, ‘am I going to enjoy this?' make sure you know exactly what "this" is.

6. Can I expand my franchise?

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If you are going to invest in a long-term business venture like a franchise, you want to make sure that the franchisor is offering a blueprint for franchise expansion. Without a route map from the get-go, you can end up as a franchisee without any sense of direction.

Different franchisors offer different expansion opportunities to franchisees. This is influenced by factors like the scale of the franchise and the size of its aspirations.

Here are some expansion keywords and phrases that you should be looking out for in any franchise proposal:

• Multi-unit franchise opportunity
• Potential to grow into new territories
• Master franchise opportunity

The takeaway

When preparing to open a new franchise, there are far more than six questions you'll need to ask yourself. However, our list of questions covers some of the most commonly forgotten or misunderstood aspects of preparing for a new franchise.

If you're looking to find a way in at a fast-growing franchise, you need to ensure that you've thought of everything and that your decision is based on extensive research and careful consideration. Hopefully, our six questions will contribute to your new franchise's firm foundations.