Before signing a franchise agreement, a potential franchisee must clearly answer a few basic questions that he must ask not only the head office of the company, but also himself.
Franchising is the best option for starting your own business for people who have not previously had entrepreneurial experience. The help and guardianship of the franchisor, his recommendations, calculations and advice will allow beginners to avoid many serious mistakes, disappointments and financial losses. But still, despite the assurances of companies that sell franchises, this business model is not suitable for everyone.
In order to understand how to build your business – from scratch or as a franchisee, with the support of the parent company, you need to analyze the degree of responsibility that you are ready to take on, your capabilities and resources, the capital that you have, experience and knowledge, as well as a large number of additional factors and conditions. Are you ready to strictly follow the rules of the franchise system, of which you will become a part? Do you agree with the limitation of independence and liability? Are all the terms of the franchise agreement satisfactory to you? So, what are the 15 mandatory questions that a potential franchisee needs to answer.1. Are you familiar with the franchising system, do you know the rights and obligations of the parties?
Surprisingly, many people who are considering franchising have a very vague idea about franchising itself. Someone considers the franchisee a branch of the parent company, someone regards it as an independent company that operates completely autonomously. Do not make such mistakes – carefully study all the features of such a business model, all its advantages and disadvantages.
2. Are the restrictions imposed by the franchisor right for you?
Will you be able to strictly comply with his requirements and the standards set by him? This question should be answered not only from the position “as it is now”, but also in the future. At the first stage of work, restrictions on the part of the parent company, as a rule, are not perceived as burdensome and do not cause dissatisfaction among its partners. However, after the enterprise becomes profitable, its management sooner or later has thoughts of autonomy. The business owner wants more freedom, which is understandable. Moreover, often his ideas and initiatives are reasonable and can lead to a good result, because he is better than the parent company is aware of the situation in his regional market.
However, the franchisor does not encourage, and even more than that, it suppresses any “freethinking”. In this case, the franchisee either begins to imprudently violate the terms of the contract, which is fraught with its termination, or stops working with the copyright holder and starts creating his own business from scratch. In the latter case, he has to choose either another region or another direction for his activities – such a requirement is usually prescribed in the franchise agreement. In any case, with the successful development of the franchise business, the right recipient may want to free himself from control and gain more independence, and for this he will have to return to the starting point. A consolation in this situation can be valuable experience, knowledge and connections gained and developed while working under the wing of the copyright holder.
3. Are you ready to comply with the standards of the franchise system?
At first glance, this question seems to repeat the previous one. However, in this case we are talking about something else. No one argues that quality standards, which are understood as a set of rules, procedures, norms and principles of network operation, are extremely important in franchising. They help the franchisor increase customer loyalty to the brand and control the activities of the franchisee. Many companies that care about their reputation prescribe everything to the smallest detail in their standards, including greeting phrases for each client. But not all companies can meet these standards. Moreover, in some cases, certain requirements of the parent company may be untenable for certain regions, conditions, circumstances. Sometimes a franchisee wants to introduce their own service standards or modify existing ones.
4. Are you willing to risk your money?
Franchising allows you to somewhat reduce the risks, but does not eliminate them completely. No one will give you a guarantee that your business will prosper if you strictly comply with all the requirements of the copyright holder. All calculations he provides are approximate. Do not unconditionally trust them. In your region, at certain times, under the influence of various factors, you will get completely different results. Moreover, as franchising is gaining popularity, a huge number of proposals have appeared on the domestic market, which, although they are called franchises, have nothing to do with them. They do not have the necessary documents, do not provide their “franchisees” with any support (although, as a rule, there is no control on their part either) and make calculations that have nothing to do with reality. Therefore, it is so important to carefully approach the choice of a partner and not save on the cost of the franchise and fees. Unless, of course, you want to lose all your money.
5. Are you ready to devote all your time to your work?
This question is relevant for all start-up entrepreneurs, whether you work independently or as a franchisee. Work on the franchising system is sometimes perceived by beginners as just following the instructions exactly and strictly observing all the requirements of the copyright holder. They treat the franchise as a subsidiary and are confident that their working hours will be strictly fixed, as if they were employed. Of course, from the very first days of work, these illusions dissipate, and disappointment sets in. However, even if you have a clear idea of what awaits you, are ready to devote to your offspring day and night, work at home and on weekends, after a few months, complete burnout may occur. Therefore, it is imperative to allocate time for rest in order to restore strength and not lose the fuse.
6. Are you confident in the support of your loved ones?
The family is usually excluded from the business life of a budding entrepreneur, but it plays a very important role. The help of relatives, their support and understanding will allow you to focus all your attention on business.
7. Will you lose interest in your business after a while?
Whether a hobby can become a full-fledged business is an ongoing debate. We will not consider economic issues, but one thing is certain – the business that you plan to do should arouse your interest and enthusiasm. Separating a business as a means of making money and a hobby as a pleasant pastime is not worth it if they can be combined. We will not now consider the profitability of a hobby as a business. The point here is not at all in demand or the scale of work. Just when your business is an extremely potential source of profit, but does not represent any personal interest for the owner, there is a great chance that sooner or later it will become boring and even disgusting. And it is quite possible that this will happen even before you can transfer control to someone else and devote all your time to your favorite hobby.
8. Do you know the key financial indicators of your future franchise point?
What turnover is planned, what profit is expected and how long will the payback period be? What are the franchisor’s requirements for the premises, and can you meet them? All indicators are recommended to be checked independently. It is also advisable to talk to other franchisees who work under this brand. So you will get more realistic forecasts and will be able to evaluate all the advantages and disadvantages of working with this copyright holder. Some franchisors refuse to provide contacts of their partners, which in itself should be alarming. However, finding all the necessary data is not difficult – just use the Internet.
Answers to the following group of questions you need to get from the franchisor
9. How long has the franchisor been in this type of business?
As we have already mentioned, a franchise is not just the right to use the trademark of the right holder, subject to a number of its conditions. First of all, it is reputation and well-established business processes. But earning the former and building the latter require a large amount of money and time. If your franchisor has been on the market for only a year, it can hardly be called a reliable partner. The minimum period, according to experts, is from 2.5-3 years (some say a period of 1.5-2 years is sufficient for a business to “run in”). The more history a company has, the better.
10. How many corporate outlets did the parent company have when it started selling franchises, and how many franchise outlets does it have now?
Before you “replicate” your business, you first need to work it out in practice. Some companies, having opened 2-3 own outlets, immediately begin to sell franchises. But soon these points may close for various reasons, up to unprofitability. It is unlikely that the franchisee of such a company will do better.
11. How has the number of franchisees changed over the past three years by year?
The answer to this question will help to find out how successful the partners of such a copyright holder are. If there is a general upward trend, then there is nothing to worry about. Most likely, this franchisor is really interested in the success of his franchisees, provides them with support, and his franchise is popular. On the contrary, if approximately the same number of outlets open and close every year, then it is quite possible that you are dealing with an unscrupulous copyright holder, for whom the main goal is to sell as many franchises as possible, and how his partners will cope with difficulties, he cares little . Also specify how many partners are working in this franchise system and how many have left it. This will show positive and negative dynamics and give food for thought. Specify the reasons why entrepreneurs leave the system.
12. Is your franchisor’s offer very different from those similar in terms of down payment and monthly payments, purchase prices, rate of return and other conditions?
Do not rush to choose, first study all the offers in this area. Any significant deviations in one direction or another is a reason to think about choosing another partner.
13. What is the reputation of the franchisor in the business community?
You can search for analytical reviews in specialized publications or contact experts. If any of the information received causes confusion, do not hesitate to ask the franchisor about it.
14. What exactly will you get from the franchisor?
This question is key, although it is placed at the end of the questionnaire. What are you paying money for? Is your franchisor ready to provide the most detailed business guidance and recommendations? Does he conduct training, in what form and how often?
15. Do you share the values of the company under whose trademark you will work?
When you join a franchise network, whether you like it or not, you become part of it. You will have to comply with all requirements and standards, be guided by the same values as the parent company. Polls show that about 30% of franchisees who terminate the contract motivate their decision by “divergence of views” from the franchisor.