If you’re starting a business, you may have considered purchasing a franchise rather than starting a company from scratch. This is particularly common in certain sectors, and has many solid advantages over starting a business on your own. However, before you commit anything, it’s important that you ask the franchisor the right questions to get to grips with exactly what you’re going to be buying.
Which services are covered by the management fee, and which services aren’t?
Some franchises will involve the central business doing all of your marketing for you, and for others it won’t. Some businesses will handle all of your customer service, and some won’t. That is why it’s important to find out exactly what you’re buying, and what expenses you will have to account for on your own.
Can I sell the franchise, and will your business help me sell it?
When you buy a franchise, you are buying a business asset. And, usually when you buy an asset, you should be able to sell it. However, most companies will have rules about exactly what you can and can’t do. Be sure to clarify this with the franchisor before you commit.
You should also try to find out exactly how hard it is likely to be to sell a franchise. With larger companies they’ll be a more liquid franchise market than with others. However, the success of your business will also have a material impact on how easy it will be to sell and how much it will sell for.
What earnings are other franchisors making with your company?
Although it’s true that other franchisees success and failure doesn’t necessarily reflect how well you will do, it can act as a yardstick. With franchising, you have to look at how well the business model has worked in the past. After all, that is what you’re paying for.
Also, you should contact every franchise that is referenced as an example of the company’s franchising model working well. It’s always best to double check if the information they provide is valid, and also if the franchisee interprets everything the same way as the sales literature suggests.
Can you provide examples of franchisees that have failed, and tell me why?
It’s to be expected that some franchisees will fail. Franchisees shouldn’t expect the franchising opportunity to be perfect, or for every franchisee to be immune from problems. However, as a franchisee, it can be in your best interest to find out the reasons why the franchising opportunity hasn’t worked out for some. You could even consider speaking with the failed franchisee and finding out the reason why they think they failed.
When doing this you should be looking out for ways that you can avoid their mistakes. You should also be vigilant in identifying whether the reason for failure appears to be the fault of the franchising company or the franchisee.
It’s also definitely worth finding out what percentage of franchisees fail. If the number is higher than other franchising opportunities in the same sector, then you should try to think of reasons why this may be.
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