Tips to make your franchise a virtually failsafe system to print money
So, you want to know if purchasing a franchise guarantees profit for the franchisee. Well, I can tell you that it doesn’t. But many franchisees are making a very decent living from their franchise. The numbers tell us this:
Franchising may not be a failsafe way to make money (when you find a guaranteed money spinner, please let the world know) but, clearly, there are many franchisees making some exceptional profits from their business.
In this article, you’ll learn a few of the strategies that successful franchisees use to make their business safer from failing.
What is a franchise?
A franchise is a business in which the franchisee (the investor/buyer) accesses the franchisor’s (the owner who sells the franchise) processes, products, services, trademarks, business infrastructure, intellectual property knowledge, and so on, to sell products and services under the name of the franchised business.
For the privilege of managing a franchise, the franchisee pays the franchisor certain fees. These might include start-up fees, annual fees, and commissions on profits.
Why franchisees should be successful
The main advantage of running a franchise as a franchisee is that you get to leverage all that the franchise has to offer – including its reputation and successful business system. What you are really buying is a right to run a business that has already proven successful. With this comes:
- A business that already has an established name – customers already know what you do
- A business playbook and model that can demonstrate success
- Training and support provided by the franchisor
- Potentially lower costs, because of the size of the franchisor’s business and its power to negotiate on price
- Templated legal and marketing tools – that’s another thing you don’t need to be concerned about
- The business knowledge of the franchise, helping you take advantage of market trends
Things to do for franchise success
With all the benefits of going into business as a franchisee, it seems mad to think that you could go wrong. How can you lose money as a franchisee in a business that is well-known and is giving you a successful model to follow?
Here are five ways in which a franchisee can screw up the enormous opportunity to make a great income from the franchise they have bought – and how to avoid making these mistakes yourself.
1. The franchisee can’t handle the responsibility of running a business
A business owner has a huge amount of responsibility on their shoulders. Often, this can mean long hours. You’ll need to manage your employees, your stock levels, your income and costs, salaries, and a bunch of other things.
Inexperienced franchisees often lack the knowledge and skills to cope with their responsibilities as a business manager. But there is help available. For example:
- The franchisor is likely to offer training and support
- There are other training routes that you can take, too
- Or you can hire a team of people that have the skills and experience to do much of this work for you
The most important thing is to be aware of your responsibilities before you invest in a franchise, and make sure that you buy the right type of franchise for you.
2. The franchisee decides they know best
Why is it that you are considering buying a franchise? Because of the name and the franchisor’s success, right? Why would you want to do anything differently? Yet inexperienced franchisees do. They don’t follow the business model, or they add their own products or services into the mix.
Remember, the underlying business of your franchise is successful – and it is successful because it sticks to its model. If you buy a local coffee shop franchise – because it’s successful as a coffee shop – why would you then decide to sell tea instead? I know, crazy, eh?
3. Investment and cashflow doesn’t add up
You’ll have the upfront costs of purchase. Plus, you’ll have the running costs and payments to make to the franchisor. If you don’t work these out and figure out your potential margins correctly, you could find that your finances aren’t quite what you assumed they would be.
Don’t go it alone when it comes to money. Have the franchise professionally evaluated. Make sure that you are conservative with your sales, cost, and profit estimates. Have the franchise agreement documents checked by a reputable franchise attorney. The due diligence you do before you sign the franchise documentation will always pay dividends.
4. The franchisee is competing with another franchise store
Especially in large cities, a franchisee may be competing with another under the same franchise just a few blocks away. There may be lots of customers, but that competition so close is eating into your sales.
When you buy a franchise, you should make sure that it’s in a good location. You’ll need to research things like customer footfall and competition. It’s also crucial to understand what the franchisor’s territory rules are. Ask the question about how close a future store could open to you – and make sure the answer is in writing.
5. The franchisee is left to hang out to dry
Some franchisors give you a huge amount of love and attention when you are starting up. But this support may disappear – or you must pay for it.
Don’t take what the franchisor tells you as gospel. Make sure that you understand what support you will be given, and if you must pay for ongoing support after an initial period. Make sure that these details are in the franchise contract.
Ensuring your success as a franchisee – the key takeaways
If you buy the license to run a business that is already profitable elsewhere, your opportunity to be profitable should be guaranteed. But it isn’t. You’ve still got to be a little savvy to make money. You will supercharge your potential for franchisee success by:
- Being fully aware of your responsibilities as a franchisee
- Buying the right franchise for you
- Resisting the temptation to be creative and stray from the franchisor’s proven business model
- Having the opportunity professionally before you commit to an investment
- Ensuring that franchise documentation works for you by hiring an experienced franchise attorney
- Buying in a good location, and understanding the franchisor’s location rules
- Ensuring that the level of ongoing support is sufficient for you
There’s one other reason why you should make healthy income and profits as a franchisee. The amount of money the franchisor makes depend upon your success. So might their reputation. A franchisor buys into your potential as much as you buy into the potential of the franchise.
Your franchise success depends upon the help and advice you receive. Book a 30-minute free consultation, and let’s get the ball rolling. Eliminate fear by employing the right strategies.