Buying a franchise business can be many things: exciting, confusing, exhilarating, challenging. But what it should not be is a quick decision. It’s easy to get caught up in the momentum and want to fast-track the process to get to the goal of being a business owner but unbridled enthusiasm can lead to disaster. Here are common mistakes to avoid when you’re vetting a franchise opportunity to see if it’s truly the right choice for you.
Mistake one: Assuming that all franchises are basically the same
It’s true that the concept of a franchise is pretty consistent across the board, but there are dozens of variables that define the structure of a specific franchise business opportunity. If you are looking at several options, treat each one as a unique offering and evaluate accordingly.
Mistake two: Assuming that any franchise will be a success
The franchise business model is an excellent way to start a business with less risk than starting from scratch, but there’s no such thing as a guaranteed success. Do your homework and learn about the industry and specific market and determine if it’s an opportunity with lasting appeal. Trendy or faddish ideas may make an initial big splash in franchising, but will they go the distance when building a long-term business plan?
Mistake three: Believing that all the hard work has already been done
Buying a franchise business, you step into an existing system and proven business model, but your individual business is dependent upon you working hard and building a business for yourself. Your financial investment is only part of the equation. Building a dynamic business will require ongoing time, energy, and effort to succeed. You do get to leverage the experience, brand recognition, and buying power of the franchisor, however, assuming all the hard work has been done, all problems have been solved, and you get to coast to success, is going to set you up for failure. Film producer Samuel Goldwyn put luck in perspective: “The harder I work, the luckier I get.”
Mistake four: Underestimating the investment
Upfront costs and ongoing investment are required to make your business a success. Ask yourself, “Do I have enough capital to sustain me through the early growth stages? Do I have the proper funding?” Costs can include legal and accounting fees, registration fees, tax and insurance, equipment costs, and other expenses you may incur setting up a new business. You need to understand the ongoing investment costs of running a franchise business, as well as the personal time and energy investment you’ll need to make to grow your business.
Mistake five: Not talking with franchise owners of the business you’re considering
As you weigh the pros and cons of franchise ownership, you’ll undoubtedly talk to family, friends, accountants, and lawyers to have questions answered, get consensus of opinion, and share wisdom. While that may all be good input, don’t overlook the all-important people to talk to—the actual franchise owners who live and work the franchise you’re looking at. Nobody knows the business better than they do, so take advantage of the list of contacts the franchisor offers and talk to all the “insiders” you can.
Mistake six: Not doing proper due diligence
Saved for last, this is probably the most critical of all. In fact, when you do proper due diligence, most of the mistakes listed above will become a moot point. Proper due diligence covers everything you need to know about a prospective franchise opportunity so that you can move forward with a rational, well-thought-out decision. To assist in this life-changing journey, the Federal Trade Commission requires every franchisor to provide a Franchise Disclosure Document (FDD) that gives an exhaustive look at the franchise business. The franchisor’s responsibility is to provide current, accurate data, and your responsibility is to carefully read the document, so you understand everything it says.
This document is so important in the decision-making process that franchisors are required to provide you a minimum of 14 days to review the FDD in full before signing a binding franchise contract or making any payment toward the sale. It’s a good idea to have a franchise attorney and/or accountant review the document with you, so you fully understand the provisions of the franchise opportunity. Some of what you’ll learn in the FDD:
- History and experience of the franchisor. The FDD needs to identify officers and directors, including their business experience and any corporate litigation or bankruptcy history.
- Costs involved in purchasing. This includes initial franchise fees, other startup costs, and an estimated range of the total cost. Additional and ongoing fees such as the royalty, marketing, and renewal fees must be acknowledged as well.
- Restrictions and obligations. The FDD must set forth the franchisee’s and franchisor’s obligations under the terms of the franchise agreement, including any restrictions to franchisee autonomy.
- Proprietary information. Additional materials, including audited financial statements, current franchisees and their contact information, financing programs, territory, trademarks, patents, and renewal or transfer provisions must be disclosed.
- Earnings potential. The FTC makes it optional for franchisors to supply information about the earning potential of a typical franchise territory. If data is provided, it must be as accurate and representative as possible, clearly labeling any assumptions or qualifications.
- Individual state requirements. In addition to the federal laws, many states may mandate additional disclosures or specify rules governing the terms of the franchise agreement.
Buy the right franchise for you
Becoming a franchise owner is a process, with each step bringing your closer to your decision. Ensuring a good fit on both sides, Home Franchise Concepts (HFC) has a proven path to follow to investigate becoming part of our franchise family of brands, starting with a conversation with one of our franchise licensing advisors who will help to match the best possible franchise opportunity to the candidate. This involves getting to know the needs of the family, exploring past experiences, and defining future goals.
If you’ve decided franchising is your next big adventure, call 1-800-420-5374 today or go online to Home Franchise Concepts and learn more about the franchise opportunities within the HFC family of brands. One of our franchise licensing advisors will be happy to answer any questions you have and help you determine if franchise ownership is right for you and which one of our brands is the best fit—Budget Blinds®, Tailored Living®, Concrete Craft®, AdvantaClean®, or Kitchen Tune-Up.