5 top tips for new franchisees
If you are eager to buy into a franchise business as a first-time franchisee, now is the time to prepare for major legislation changes potentially set to shake up the industry.
Navigating through legislation, regulations and the common pitfalls of fledgling businesses can be complex. Here are some top tips that budding business owners should consider before setting up a franchise.
1. Learn the basic skills of running a business
People who wish to start their own business but are hesitant because of their inexperience, often turn to franchises as they view them as well-established companies that would offer support. This is not the case. A franchise does not teach you how to run a business. Good franchisors may offer mentoring and training sessions on the brand and systems, but without some basic business skills, novice punters are bound to struggle. Undertaking further studies, such as a Diploma of Business, will help you gain a better understanding of what you’re getting yourself into.
2. Do your research as a first-time franchisee
Franchisors will provide a first-time franchisee with an encompassing amount of material and information to read prior to signing a contract. Make sure you read the material provided in great detail as it is your best chance to get a snapshot of the business and find out if you have any further enquiries before committing to the investment. Further, ensure you research the proposed location to view foot traffic, peak times and competitors.
3. Seek professional advice
The disclosure material you receive as part of your due diligence will contain financial information about the business. It’s strongly recommended as a first-time franchisee to invest in professional legal and accounting advice very early on to find out what your financial position actually is and what it is projected to be in the first 24 months.
This is where most young businesses fail, because people do not receive enough guidance on what their cashflows are going to be until they establish themselves. While many only account for the initial costs, they don’t consider what life will be like without any real income until the business gets off the ground.
4. Understand the franchise fee structure and ask questions
A franchise that structures its fees based on a fixed percentage of your profits tends to be more committed to your success and confident of getting more money out of its successful franchisees. Franchisors that just charge a flat rate no matter how well or poorly your business runs may not have your best interests at heart. That’s not to say they don’t, but it does raise another question for you to ask.
5. Stay committed and prepare to work hard
Learn the company’s values and their goals and get behind them. You do not buy into a franchise to assert your own ideals. Chances are, you have seen something in a franchise business that connects with you. People often want to run their own business for the freedom it offers, time-wise. Try and think of that freedom at least two years in advance. Work hard and put effort into your business and your staff early on, and the business has a better chance of reaching “critical mass” and being sustainable.
Spencer Slasberg, is a Senior Associate and Commercial Litigator at Bennett & Philp Lawyers. Having appeared in all levels of Court process from QCAT to High Court, he has considerable experience in a wide range of commercial and insurance disputes, litigation and dispute resolution.
This article first appeared on Inside Small Business, a sibling publication to Inside Franchise Business.