Tag Archives: Buy a Franchise

Your Mistakes Will Cost More Than You Think

When you start your own independent (non-franchised) business, your mistakes will be more costly than you imagined. In fact, your mistakes will probably put you out of business.

I’m not writing this to scare you away from starting a business without a franchisor; I’m writing it because it’s factual . . . and scary.

Do indie businesses survive?
Have you looked at the statistics? How many independent start-up businesses survive in the USA? Rather than take my word for it do some research, or better yet, just ask a local business banker!

Of course, the more entrepreneurial you are, the more likely you are to say that you can avoid the mistakes, and maybe you can. However, the statistics say otherwise. Most independent startups fail.

Why mistakes occur
Many people think certain businesses are easy to start and operate. Let’s take pizza for example. Many people can make a “good” pizza? My Italian grandmother made the greatest pizza in the world, so it’s no surprise that many of my cousins can make great pizzas, too.

In fact, when people tasted my cousin Mary’s pizza, they told her that she needed to go into business. And she did! Mary and her entrepreneurial husband (also an Italian) opened a couple of pizza shops, and in a matter of years were dead broke.

How could that be? They made a “great” pizza.

Can you sell what you make?
I’ll tell you how. They knew how to make pizza; they didn’t know how to market and sell pizza. Franchising’s saving grace is that it knows how to distribute (sell) products and services.

It is simple to open a pizza shop. You get a good location, buy the equipment, bring in the supplies, get a recipe, put up a sign, do some marketing and . . . voila! . . . you’ve got a thriving business.

No, you don’t. You’ve got a money-sucking business, unless you avoid the mistakes.

What do customers want?
Mary’s first mistake was believing that consumers want a “great” or even “good” pizza. They don’t. Just look at what they buy everyday!

Mary thought she could build her business by advertising in the newspaper. Wrong. The pizza franchises would have saved her from that mistake.

Mary also thought she could build her business without delivery. Wrong. The pizza franchises would have saved her from that mistake, too.

Too many mistakes
There were numerous other mistakes . . . Mary didn’t know how many slices of pepperoni to place on a large pizza and still keep it profitable . . . and the pizza franchises would have saved her from that mistake as well.

After so many mistakes, Mary and her husband lost their business and much more.

It’s easy to make these mistakes . . . Mary and her husband had no idea they were making them. They would have done anything to avoid them . . . except buy a franchise. Because a franchise would not have allowed Mary to sell her “great” pizza.

Should you buy a franchise?
Look, you need to make some tough decisions before you start a business. What’s important to you? Your way? Or a franchisor’s way? Keep in mind that the franchisor may not sell what you consider to be a “great” or even “good” product – if that’s important, find another franchisor, or avoid franchising.

Of this you can be sure: If you buy a reputable franchise (and they’re not all reputable) the franchisor’s training will save you from making too many costly mistakes. You’re still going to make mistakes, but in a franchise, the mistakes probably won’t put you out of business. Ask your banker how many of his or her franchisee clients fail? It’s one of the reasons why bankers love franchising.

In fact, even though they won’t tell you, the bankers know you are going to make mistakes when you start an independent business, and even though you’ve accounted for mistakes in your business plan and cash flow estimates, the bankers know better. Your mistakes are going to cost more than you think.

Are You Talking To The “Best” Or The “Worst” Franchisees?

Best worst franchises

Be careful about who you talk to when you interview franchisees.

“After talking to your franchisees, I’ve decided this isn’t the right business for me.”

As a former franchisor, I occasionally heard that statement from prospective franchisees, and I always asked, “Who did you talk to?”

Sometimes the prospective franchisee wouldn’t say for fear that I might use the information against the franchisees, but often times I persuaded them to name names.

Why talk to the worst franchisees?

Then I would glance at my list of franchisees rank ordered from Best to Worst. The “best” were the franchisees that produced the highest numbers (and most money) monthly, and the “worst” were the struggling franchisees.

If they had talked to the “worst” franchisees, I would say, “Do you think it’s a good idea to make a decision based on information gathered from the worst franchisees in our network?”

 

Who are your best franchises

“The franchisees you spoke to are ranked in the bottom third of our network. I doubt that they can give you an objective review of our franchise. If you had spoken to our ‘best’ franchisees, do you think you might have come to a different conclusion?”

Of course the answer was always “Yes,” followed by, “Who are your best franchisees?”

Why didn’t you ask that question earlier?

You might be wondering why I didn’t give them the list of our best franchisees from the get-go. I didn’t because it might have been misconstrued. Franchisors must be careful not to appear as though they are “leading” a prospective franchisee. If I told you the names of my best franchisees, and you never talked to the worst franchisees, you might later accuse me of stacking the deck to convince you to buy a franchise.

However, had you asked me for the names of my best franchisees, I would have told you. Most prospective franchisees don’t know to ask that question – or, for that matter, most of the other questions that should be asked before buying a franchise.

You might even argue that talking to the best franchisees only makes sense. Yes, it does, because they are the franchisees that know what they’re doing. They are the franchisees that know how to operate the business successfully. The worst franchisees – and every franchisor has them – are looking for that “mutually beneficial relationship” that some franchisors promise!

By the way, you’ll find all the key questions to ask before buying a franchise in 101 Questions to Ask Before You Invest in a Franchise.

 

Does A “Mutually Beneficial Relationship” Appeal To You When Buying A Franchise?

beneficial-partnership

How do you feel about a franchisor that promises you a “mutually beneficial relationship”? Does it make you feel (choose only one):

  1. Warm, Fuzzy & Can’t Wait To Invest
  2. Ambivalent: What’s the franchisor really promising?
  3. Turned Off Because It’s Not Good Enough

If you selected “C”, I’m with you!

Franchise investments are expensive — many require your life savings, plus your signature on a note for money that you will owe even if your franchise fails, and your legally binding commitment to pay the franchisor even if your franchise falters or fails — so I’ll pass on anything that’s “mutually beneficial.” In fact, does that even sound like it’s “mutually beneficial”?

Instead, I want a franchisor who’s going to do everything possible to make my franchise business successful. Even more, I want a franchisor who has proven time after time that he or she knows how to turn franchisees into success stories, even in the worst of circumstances.

I know a franchisor will not and should not promise to make me a success, but I want the franchisor’s word for doing everything possible to help me. Beyond that, I want proof that the franchisor knows how to help me succeed. I don’t expect miracles — I’ll deliver on my end by meeting the franchisor’s requirements — but please, save the “mutually beneficial relationship” hype. That might attract neophyte franchise investors, but not me!

Am I asking for too much? You tell me.

 

8 Ways Franchise Brokers Can Help You Buy A Franchise

Working with a franchise broker can help you make a better choice when you buy a franchise.

Buying a franchise may be your most expensive investment ever, after buying a house. And like buying a house, you’ve got to spend a lot of time looking, comparing, evaluating and thinking about which franchise to buy, and most of us aren’t comfortable doing all that work on our own. When it comes to buying a house, we call a real estate broker or agent to guide us through the journey and to help us ultimately make the right purchase. In franchising, many buyers rely on franchise brokers, and here are reasons why a broker might be right for you.
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  1. Franchise brokers are educators. Well, truly, they are sales people, but good sales people know to be educators first. Brokers can teach you about franchising, including legal considerations, trends, financing, and the realities of franchise ownership. Good franchise brokers can answer your questions about franchising and guide you through the selection process, ultimately helping you to discover an opportunity that makes sense for you.
  2. Franchise brokers are good listeners. By listening to their clients’ needs and expectations, brokers can keep their clients’ interests in mind at all times. Listening allows the broker to do a thorough job of educating clients about the pros and cons of franchising, and about the potential of a particular franchise opportunity. If you say you don’t like working in an office, or you want to work from home, or you’d rather not work with other people, the broker should lead you to opportunities that satisfy your desires.
  3. Franchise brokers can reduce your risks. There are always risks in any business, but brokers can help you avoid many of the risks. Brokers, for example, will shy away from representing bad franchisors, thus saving you from that experience. Brokers can help you assess franchise opportunities to find those that meet your needs and expectations.
  4. Franchise brokers prepare you for a meeting with the franchisor. Almost every franchise company sponsors a Discovery Day, which is actually a sales event disguised as an information event. Remember, franchisors are sales people, too! A broker will help you prepare for the Discovery Day by thinking about the questions you need to ask and knowing whom to meet when you visit the franchisor.
  5. Franchise brokers help you prepare to meet and question franchisees. As a franchise prospect, you’ll want to meet people who are already operating the business you’re thinking about buying. The broker may know existing franchisees whose backgrounds are similar to yours, so you’ll feel comfortable talking to them. Just be sure the broker doesn’t keep you from talking to any franchisee of your choice. There are likely some “bad” franchisees and franchisors and brokers would prefer you avoid them, but they may have information that you need to hear. Good brokers aren’t going to get in your way of investigating the franchise opportunity.
  6. Franchise brokers understand the franchise documents. Do you know how to read a Franchise Disclosure Document or a Franchise Agreement? Probably not. Good brokers do. Before representing a franchise brand, brokers study the franchisor’s documents and can explain them to prospects. This will save you considerable time and confusion.
  7. Franchise brokers “sell” you to the franchisor. This is especially helpful when the franchise you want to buy is “hot” or in demand. Why would a franchisor consider you when there are so many other applicants for the same franchise? Similarly, let’s say your application doesn’t look so great on paper, but the broker knows you’re a good fit for the franchise. Franchisors listen to their brokers because they trust them. Brokers can quickly identify appropriate prospects for the franchisor’s business.
  8. Franchise broker fees are (usually) free. The franchisor pays the broker a generous (and well deserved) commission upon the sale of a franchise, so brokers do not take fees from buyers. However, some brokers may charge an education fee, or an assessment fee for a personality tool. However, most good brokers will not charge a fee.

Working with a franchise broker, like working with a Realtor®, can save you time and money, and will usually lead you to buy a franchise that meets your expectations. You should check out the broker in advance – work only with experienced brokers who can provide you with a variety of client testimonials – and you may do so through the International Franchise Association.