Threat of franchise: important advice to budding franchisees
A novice franchisee may face numerous challenges and problems. Some of them are typical for all types of business, but there are also unique obstacles that should be taken into account, otherwise the franchisee risks being left with nothing. Yevgeny Dobrinin, commercial Director of navikom, gives recommendations on buying and running a franchise
The main difficulty is finding a suitable business area. Analyze your budget, narrow down the list of options. Think about which area of business is the most understandable and close to you. This will determine how long you will be able to conduct such activities. Then try to talk to franchisors, who will guide you on the complexity of doing business, the timing of its opening, and so on.
Below we provide ten useful recommendations and tips for franchisees to buy and run a franchise business.
First tip: avoid fake companies
When buying a franchise, it is necessary to weed out all fakes. Many companies are created exclusively with fraudulent schemes. There are three types of such companies:
The first type of the franchise-dummy. Attackers create a brand that will copy all the features and aspects of another well-known brand: colors, services, and so on. Usually the brand is not registered anywhere in this case. A novice franchisee can make a mistake and buy a franchise that will give absolutely nothing.
There is no value in this franchise. The purpose of forming such a franchise is to earn money on fake fame and popularity. As soon as the contract is signed, people posing as franchise owners will simply disappear with money.
The franchisee will have to pay for such an oversight. And often brand owners who have copied the corporate style can go to court and, of course, win it. Stolen ideas rarely produce positive results.
There are quite a lot of such franchises that are empty. Copyright holders of real brands are hunting for such companies and quickly eliminate them through the courts.
The second type of dangerous franchises: one-day franchises. Such companies often promise huge benefits to franchisees, add a lot of facts that are supplemented with mathematical calculations and calculations for credibility. All these unreal pictures will open only when the franchisor pays a small fee. Of course, as soon as the money is received, the franchisor will disappear from view.
The purpose of creating a franchise in this case is to get an initial payment from the franchisee. It is necessary to look at exactly when the company was registered, when the franchise was opened. If these dates are recent, it is better not to contact such franchisors.
The third type of dangerous franchises: underperforming franchises. A small company that is doing well is starting to offer its franchise. It has insufficient experience, it does not have any ready-made schemes, it is not able to support the franchisee qualitatively. Recently, there are more and more such companies. There is already a certain fashion for franchises. In this case, there will be no comprehensive support for the franchisee.
The options are as follows: either the business will close in a couple of years with only losses, or the business model will be refined, tested and debugged by trial and error. However, this raises the following question: why buy a franchise if you need to take the same steps as in the case of a normal business from scratch?
Second tip: always try to think things out on your own
The problem for many franchisees is blind faith in forecasts. Usually, all companies offering their franchises have a franchise Department. Its goal is to increase franchise sales. Of course, it is not always possible to stumble upon deception, but it is better to understand in advance what the risks are, than to blindly believe all the calculations from the franchisor. They may have a lot of promises, but in reality everything is always not so rosy.
It is best to conduct a basic analysis of the market situation yourself. If you want to buy a franchise for a small city, then it may turn out that this product is not in demand at all. But in the metropolis, it will have huge sales. You can analyze competitors — if there are no competitors at all, then most likely the business will not take off.
Third tip: always plan your budget
Franchisees need to immediately calculate their costs and generate some inventory just in case. Typically, a third of the base investment is used as inventory. When you open a franchise business, there are some additional, hidden costs that are also worth considering. Therefore, it is better to discuss the budget with the franchisor at the initial stage. In their presentations, franchise owners often indicate only the approximate amount of investment.
In addition to the initial investment required for the launch, you will also need to have money to pay employees ‘ salaries, rent, and other expenses that are not always immediately compensated by profit. Usually the first 3-6 months the franchisee works “in the negative”. He only invests money, and only then can reach the zero point, when expenses will be equal to income. And only then will it be possible to gradually reach the payback.
Other important tips:
Really evaluate your capabilities: how much money can you really invest in the business? Usually the lower threshold is 10 thousand dollars (the so-called lump sum). If this amount seems too large for an entrepreneur to start a business, then the question arises as to how he plans to develop further. The turnovers that franchisors give as an example are achieved by fruitful work for a year or more, and moreover, with strict compliance with all requirements, sometimes quite strict;
Always put everything in writing. All your agreements must be official and signed. This is the only way to build a business relationship. If all the promises were in words, then you will not prove anything later;
Study all points of contracts and documents. All documents must be studied in detail. Study the term of the contract, analyze the territorial coverage, ask the franchisor to provide you with a copy of the certificate that the trademark was officially registered. Later you can check the fact of its registration via the Rospatent website;
Popularity is not a guarantee of high sales. You should not take only the most popular brands. They do not always allow you to achieve a stable income. Learn all the features of the franchise, not just blindly believe the brand;
Communicate with other franchisees. Be sure to find franchisees from other regions and talk to them. They will share their information and difficulties about running such a business;
Communicate with the franchisor. Ask awkward questions: how many franchisees have already closed, for what reasons it happened. This information will be very valuable to determine whether or not to deal with such a franchisor;
Be trained. You should not blindly believe only in your own strength. The franchisor will give you the necessary database, reveal business information that will help you avoid mistakes when running such a business;
You should choose the direction that you like. You must understand it in detail — or at least have a craving for it. If you have always wanted to open your own beauty salon, you do not need to take unnecessary risks and purchase a franchise for oil refining. No business model will make a profit if the entrepreneur does not have a strong motivation;
Finally, don’t rely entirely on the franchisor. You will have to work hard, remember this. The franchise is the same business. It is necessary to carry out sufficient optimization, eliminate shortcomings, and make the right decisions for the company’s development.
What else is important to know
A popular question facing novice franchisees is which is better: a franchise for goods or services? Here everything must be decided by the entrepreneur himself. Large bona fide international franchises provide partners with detailed information on building and running a business.
Bona fide franchisors publish open reports on their activities. Real statistics for each point of sale — the best advertising for any franchise. Some partners deliberately choose a franchise of major international brands for cooperation. An international brand is a higher level, and it always cares about its reputation. Such companies support partners across the country: in parallel with higher requirements for them, they provide franchisees with advertising materials about the company’s products, provide assistance in the field of marketing, and consider partial compensation for the costs of product promotion activities and assistance in their implementation.
Note that the direction of the franchise to be very successful in small towns. This is due to the fact that staff in such cities is cheaper, as well as premises for rent. Popular destinations: medical services, opening grocery stores, children’s stores, and so on. It is also necessary to take into account local peculiarities of doing business. Each region is unique in terms of purchasing power of the population. You can use open statistics to understand how often people search for certain queries in search engines.
Opening a franchise business is not just a secondary activity that you don’t need to spend money on. This is a very active work, regular work for the benefit of increasing your income. If you decide to retire, your business will simply collapse. You must be ready for regular work, otherwise there is no point in even trying to buy a franchise.
You can also see how often the franchisor closes new points. What are the comments about its activities? In social networks and specialized resources, you can find a lot of interesting reviews for almost every more or less promoted franchise.