In our business, we regularly meet people who feel frustrated because the franchise they purchased hasn’t gone as well as they expected. The frustration could have been reduced if these people had avoided five common mistakes that overconfident franchise buyers make.
Undefined goals
If you don’t know what your goals are, how will you know what success looks like for you?Clear goals help you make choices about what you do with your time and money. Your goals help you decide which franchise to buy and how you will run it. But many people don’t have clearly defined goals. They might have a vague sense of priorities and what they want to achieve, but nothing is written down. This lack of clear goals makes it all too easy to rely on your feelings, rather than properly assess the franchise.
To avoid the problem of undefined business goals, all you need to do is write down your goals. It’s really that simple! Once your goals are out of your head and onto a piece of paper you’ll be able to clarify them, refine them, and then use them to help you decide on a franchise that will help you achieve them.Underestimate how hard it is to run a business
It takes sustained hard work to run a successful business.Franchise buyers often underestimate the effort required to run a business. As a business owner you will be responsible for many more things than you were as an employee. You’ll also need to learn new things. It will be a challenge!
Stop to think for a moment of all the things that the owner of a small business is responsible for. From generating sales and serving customers to employing staff, paying bills, and keeping business records – it’s all up to you. Even if you don’t do all the tasks yourself, you need to know how to do them.
People who embrace the role of business owner are likely to flourish in business. They accept the challenges because they see them as part of a life well lived. But what are the challenges?
To get an understanding of what’s actually involved with running a business, ask other business owners what they found hard when they first started out. It’s also a good idea to spend time working in a franchise business to get a sense of what daily life is like.Inadequate advice
The right advice will help you reduce risks and increase your chance of achieving your goals.In franchising, advice is sometimes seen as a ‘box ticking’ exercise that boils down to a lawyer summarising the franchise agreement and an accountant warning that you might lose your investment. This is not advice, it’s really just a warning – and it’s not a good foundation for starting a business.
The right advice is about working with experts to help you identify the risks and work out how you will reduce and manage them, and also how to create a foundation for success. In the process of working with your advisers, you’ll develop valuable skills that will help you in your business, including the ability to ask questions, seek and consider advice, create financial budgets, and make informed decisions for which you accept responsibility.
To avoid your franchise buying advice being an expensive box ticking exercise, look for advisers with expertise in working with franchisees and small business owners, who will help you understand the business and develop your business plan.
Don’t know the leadership team
Do you really know the people you’re going to be in business with?As a franchisee you will be in business with the franchisor management team and shareholders. Their decisions and execution will have a direct impact on your business, whether that’s through the strategic direction for the franchise group or in the way they conduct their business relationships.
Unfortunately, many franchisees jump into a network having had minimal exposure to the senior management team, and no understanding of the strategic direction of the business. If you’ve not met the people, how can you know what they are like to deal with?
The way to know who you’re getting into business with is to meet the management team and ask them questions. You should also ask existing and former franchisees what it’s like to deal with the franchisor when things are going well, and also when there’s a problem.Paid too much for the business
If the numbers don’t stack up before you start, they are unlikely to get better later.It’s vital to do a reality check on the financial opportunity of the franchise you’re considering. This will help you avoid discovering later that it can’t pay you a wage or repay what you invested in the business.
Of course there are no guarantees of good financial results. But part of the value proposition of a franchise is that it increases the reliability of financial returns compared with starting a non-franchised business. So, if the numbers don’t work out on paper based on the information from the franchisor and existing franchisees, then it’s probably overpriced or fundamentally unviable.
The way to avoid paying too much for a franchise is to fully understand the costs to set up and run the business, and to work with a business adviser to prepare a financial forecast that covers three to five years of operation.
Franchises can be a good choice, but don’t let your optimism blind you to the need to properly understand the opportunity and manage the risks. The right advisers will help you set a foundation to achieve your goals and enjoy your business.
Kate Groom is co-founder and director of Franchise Accounting and Tax. She has previously worked for franchisors and as a business adviser. Kate’s focus is on helping clients understand the financial aspects of running a business and on business planning and coaching. She is also a director of a number of ‘not for profits’. https://www.franchiseaccountingandtax.com.au/
