Tips for buying a franchise

By Dean Demeyer – Business Broker

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Dean Demeyer

 

For the last 18 months or so there has been a focus on four or five franchisors that have done the wrong thing by franchisees and their employees, and this casts a negative spotlight on the other 1,100 franchises across the whole sector. There is nothing wrong with the franchise model, just a few poor companies that happen to run franchises.

It’s worth noting, buying a franchise is not necessarily a recipe to success.  The risks of starting a franchise business are much the same as an independent start-up business.  The success rates are similar.  In both forms you have to attract new customers away from existing businesses.  How good you are at attracting customers is the defining success factor.

When you do look at franchise opportunities, here are three things to consider:

  1. Look for a franchise system that is fee-based and not royalty based. You want to pay a flat fee per month compared with a percentage-of-sales royalty. You don’t want to pay royalties when you are making losses. That means you are bearing all the risk.
  2. Franchisors sell (or should be) effective successful operating systems – a recipe if you like. Importantly, ensure the franchisor provides an operations manual, which contains the franchise system. It’s best practice to verify this with existing franchisees, not the franchisor.
  3. Look for an industry that isn’t over saturated with franchisees, but populated with independent businesses. Be the first franchisee in that industry. If you look around its easy to identify industries where there’s saturation. E.g. Mowing, Food, Cleaning etc.

The best advice if you really want a franchise where you are supported with systems and guidance from a franchisor, and you don’t want the hassle of finding customers from start-up, then buy an existing, successful and profitable franchise location as a going concern.

 

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