There are 10 common mistakes franchise buyers make when researching franchise opportunities. These mistakes can hinder a successful franchise match for the buyer. In order to find a quality franchise match, I encourage all of my clients to consider these 10 items listed below so that they can go in with their eyes open and discover the franchise opportunity that will make them successful.
1. Believing everything posted on the Internet
- Anyone can write anything, and they don’t have to prove what they say. Keep in mind that information integrity is an enormous Internet issue, and read with a critical eye.
- Before you believe what you read, find out who the author is and what their agenda might be.
- Keep in mind that the Franchise Disclosure Document is a reliable source.
- Seek out the opinions of people who own franchises. They are accessible and valuable sources of information
2. Not Considering Your Exit Strategy First
- If your exit strategy is to sell your business to seasoned buyers, look for these things: A scalable sales and marketing system with a significant market opportunity, accounting systems with recurring revenue, and learnable management systems.
- Choose a franchise now that has these features for a clear exit path down the road.
3. Asking only evident and relative questions
- Many buyers ask only three basic questions during their due diligence: How much can I make, how much will it cost, and the best markets.
- The problem is that these simple questions are devoid of context.
- Solve this problem by following a comprehensive checklist from a franchise expert.
4. Not Understanding the 20-60-20 rule.
- The bell curve is a fact of life. As in other occupations, people who own franchises are 20% Low performers, 60% average, and 20% high performers.
- Plan to talk to the stars, as well as the average and low performers in your investigation.
- Determine what specific behaviors separate the different performance groups.
- Remember that this is a myth: Everyone in a franchise system is a “happy camper.” Expect some negativity.
5. Forgetting That the Investigation Is A Mutual Assessment
- In today’s economy, franchisors have a seasoned and savvy talent pool.
- Franchisors are investigating you just as much as you are investigating them.
- Investigate with respect. The franchisor took the first significant risk in creating the business.
- Interest levels for remaining territories can be fierce and very competitive.
6. Being either too analytical or too intuitive
- Both methods of decision-making are equally ineffective when used alone.
- Keep in mind that there is no perfect business model. Every business has some warts.
- Seek out advisors who will counterbalance your decision-making method.
- Be data-driven and listen to your gut in combination with each other.
7. Not defining or understanding your unique buyer values.
- Begin by defining the lifestyle and business outcomes you are hoping to create.
- Three percent of the US population has written goals. Use this knowledge to your advantage.
- Sit down with your spouse (and your family) and ask, “What do we value the most.”
- Share your outcomes list with your advisors. Ask them to hold you accountable.
8. Not compiling a team of Advisors in your decision making.
- Seek out a franchise expert who has worked in the industry for multiple years.
- Ask for an attorney referral who specializes in franchise and distribution law.
- Find a CPA with a small business experience. Franchise experience is helpful.
- Ask yourself: Is your investment advisor worried that his income will decrease if you buy a business.
9. Going with the least expensive/cheapest royalty business
- The average franchise royalty is seven percent of gross revenues, which is only one data point.
- Evaluating royalty alone is decision making from a single perspective.
- Royalty is one of many moving parts in a complex financial calculation.
- A trusted CPA with small business experience is a great resource.
10. Allowing others to “snatch your dream” without the facts
- Advice from people who have done what you are hoping to do is good advice.
- Advice from well-intentioned family, friends, and acquaintances is opinion. If you need heart surgery, you will get the facts from a heart surgeon, right?
- Seek out, small business owners.
Are you interested to learn how to reduce your risk of starting your own business?
Your evaluation process is exactly the way a serious investor wants it to be, and it begins with education as the #1 step to learning about business ownership. As a franchise coach, I can assist you, at no cost, through the investigative franchise process. Avoiding the 10 common mistakes that franchise buyers make is only where we start, there is so much more involved in the decision making process.
- I help you assess your skills, financial needs, strengths, weaknesses, aspirations, and lifestyle requirements. We will work together using my Franchise Navigator tool supplemented with hard-earned industry experience to provide you the optimum counsel and direction you want.
- I direct you and introduce you to the appropriate franchise concepts that meet your needs – BUT only to franchise companies that have been pre-screened to my performance standards and weather economic storms. There is NO fee for my services, the franchisors pay me a fee if I find you an incredible franchise business match that you choose to invest in.
- I continue to work hand-in-hand with you as you investigate your franchise concepts so that your evaluation process is focused, thorough, and you learn what you initially need to know about franchising – AND available AFTER you purchase a franchise, should you choose to.
- I publish a wealth of educational info that assists your evaluation process and your post-buy efforts to manage your franchise effectively and efficiently – instead of material designed to “convince you to buy a franchise.” Only a franchisor can sell you a franchise – so my only role is to help you make an informed decision about your future.
Have questions about franchising or curious about the process to define your next chapter? If Yes, Let’s Connect.