Starting a franchise is a good gateway into starting a business of your own. I have many friends from Entrepreneur’s Organization who have found great success in their business careers just for picking the right franchises and growing with the brands
I often ask why they choose to go down the franchise route instead of creating their own brand and their own business but they often say that the benefits outweigh the cons. Among the benefits are the ability to leverage an existing brand that is well-known to even using the opportunity to learn more about a business and industry.
There are cons too of course, and in talking to my friends, I’ve taken away some learnings from their experiences in being a franchisee that I thought I’d share here.
Here’s what to look out for before you buy a franchise.
1) The Brand
How big is the brand of the franchise you want to bring in? A big part of what you’re buying is the brand and that’s what you’re hoping to leverage on.
A big enough brand would be able to drive sales for you without a significant investment in marketing.
Some companies now start franchising their outlets from their really early days before their brand is well-known in order to expand quickly.
The downside of going for franchises like that is that you really then have to rely on a strong product to sell because the brand won’t be able to give you much help.
2) The Management
When you buy a franchise you aren’t buying a company. You’re buying the license to sell a company’s products the way they do it. You have no control of the direction of the company or which products they choose to sell or discontinue. All these things are made at the franchisor’s level and then just passed down to you. So to buy a franchise is to invest not only in yourself but to invest in the management behind the franchise.
Check the track record of the management and decide if you believe in them.
3) Location
Many franchisors already have set locations in malls where they know they want to open. This is helpful because it gives you a bit of a head start but don’t take it at face value. Visit the area, do your own research and find out if the product you’re going to be selling will sell well in the location you plan to sell it at. Look around to see if there are competitors too.
If you’re taking on a good brand with a decent product, the thing that normally makes or breaks your business is the location. So put a lot of thought into this because once you’re committed to one location, you can’t move without losing your sunk cost.
4) How much it costs?
Just like all businesses ventures, before we invest into them we have to look at the return on capital. Sure a bigger and more established brand will likely cost you more but if you do your math and the cost is way more than the potential return on investment you could get then perhaps it’s worth a pass.
It’s important to look beyond the costs and into any potential hidden costs. Anything from deposits to the landlord which can be substantial if you’re in a mall, employee insurance plans, or even interest cost of loans (if you have to borrow money).
It’s also important to look at the long term costs. Some principles require that you constantly open X number of stores every year. So a good portion of whatever you earn ends up being reinvested back into the business which is great because if you’re successful you’ll end up with a hundred stores in time… but it could be bad if you have more short-medium term financial goals.
5) Support from the franchisor
This is one of the most important things that my friends constantly reminded me of. Some have been in businesses where they feel the franchisor didn’t give them the support or the training they needed to excel and grow the business to the next level. Coupled with the fact that as a franchisee there are limitations on what you could do, they eventually get stuck. It’s a frustrating experience to be stuck in a business and helpless in being able to do anything to solve it.
Sponsored: Since we’re talking about franchising, here’s an interesting franchise opportunity that’s available now.
Senheng (Yes the electrical shop that has been around for decades) is now providing franchise opportunities to wannabe entrepreneurs. I thought Senheng’s approach was interesting because they have the Senheng Franchise Academy that focuses on first training you from a Sales Associate to a Store Manager and beyond.
On top of that they provide financing opportunities so you could start your own franchise business with them with no up front cost. You can find out more here.
Timothy Tiah – Co-Founder of Colony, Kuala Lumpur Co-Working Space