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10 Questions to ask before investing in a franchise

May 26th, 2017 by Joel Caws in Franchise Tips

moneyFrom over 900 franchises to choose from in the UK, deciding which one is right for you can be a challenging task. Ensuring you thoroughly research your opportunities before making your final decision is one of the most important steps in the investment process.

Here are ten important questions you can ask the franchisor in order to establish if it’s the right franchise for you.

1. How long have you been in franchising?
If the franchise has been running for a number of years, the concept is tried and tested. However, success can be measured in a number of ways; we recommend establishing the growth of the business within the previous five years at least.

2. How much is the initial set up and what do I get in return for the franchise fee?
One of the common mistakes made when buying a business is not establishing the total outlay. The most important thing to establish here is what the franchise package includes. Does the package allow you to launch the business? If the business requires a shopfront, is the fitting included in the price? You need to make sure you know what you are getting for your money.

3. How much working capital do I need?
When trying to establish what the total outlay is, always consider your personal expense. If a franchisor advises you initial set up fee is all you need then consider running a mile! It will take a little time to get you trained and to set the business up. You want to make sure you have enough working capital to keep you going before you really start bringing the profits in.

4. Is the franchise business seasonal?
This is a very common mistake investors do not consider. Seasonal business can not only have negative impact on the finance, but also job satisfaction. Some people can very quickly lose interest in the business by not being active all year long. For others, it allows for more flexibility. Make sure you know how the business runs and whether that suits you.

5. How often is the operations manual updated?
All franchisors should have an operations manual, but printing 1000’s of pages and giving it to you to read is not really practical in the long run. Furthermore best practice is always evolving and the manual will need to be updated constantly. Ask your franchisor about the operations manual and how it works. You will want to ensure the business is developing as times change, but is still proven to work. A good franchisors will also take into consideration any thoughts you may have about developing the operations. If they like the idea, they may test it to see if it works and roll it out to the company if it is successful.

6. Who provides the training and what does the training cover? Is there future training available?
The reason one probably invests in a franchise is due to the fact that it is a proven concept. However, only a comprehensive training program will get you in shape to practice the concept. You should try to establish if the training covers all elements of the business you’re looking to invest in and is it documented. This is also an opportunity to find out how long the initial training is. Commonly, training is for less than 6 weeks. But if it is any longer, most franchisors will have it written in the contract. Keep in mind that the time spent during initial training will take a toll on your working capital.

7. What help will I receive in local advertising and promotion?
One of the signs of a good franchisor is how much support is available and marketing is perhaps the most important element of it. However, you should try to establish if the franchisor has the business structure or personal help to offer support. As a new business, you will need support in promoting your services to your territory.

8. What exclusive rights do I get?
It is critical in the franchise industry that multiple franchisees are not operating in the same area; otherwise you end up with competing with the same brand. Furthermore, consider other aspects such as online orders.

9. What continuing support do you provide after the business has commenced?
Cost is the biggest killer for business and supporting your business can cost lot of money. Good franchisors generally take care of the support as much as possible and gets the franchisees to focus on selling. Focus on long terms supports for your business processes when trying to establish an answer to this question.

10. Can I talk to current franchisees?
If you even have to ask a franchisor to speak to the franchisee you should be concerned. If the franchisor hesitates to give you contact details of active franchisees, then you should walk away from the investment. It is important to meet people who were once in your position, and it will give you the chance to see how the franchise works from their prospective.


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