5 Things to Know if You’re Opening a Franchise

The prospect of opening a franchise with an established brand is exciting. While a strong brand comes with many advantages, pitfalls abound if you go about it the wrong way. Just because a brand is known and instantly recognizable isn’t a guarantee that your franchise will follow the same trajectory. Below are five things to know if you’re opening a franchise.

1. Read the Franchise Disclosure Document

Before opening your franchise, you should first read the FDD (Financial Disclosure Document). This 23-item document provides would-be franchisees with information about the franchise system, the agreements to be signed, and the franchisor.

2. Understand Brand Recognition Comes at a Price

A franchise sells you business know-how and brand name recognition. A brand takes time, and money, to build. If you research, you’ll realize that most established brands have invested millions of dollars over time to get where they are.

To use such a brand, expect to pay for it. The good thing is that, since these brands are known, associating with them almost guarantees your franchise will succeed. Ensure the brand is strong in your region to justify the hefty fees. There’s no fun in paying a hefty fee for an internationally-known brand that’s barely recognizable in your locality.

3. Compare the Pros and Cons of Opening a Franchise

One of the best things about opening a franchise is that you won’t start from scratch. The design and branding concepts are ready, so you can focus on the key operational aspects of your business. Also, since the franchisor already has existing vendors, the headache of researching providers and signing contracts with them is already taken care of. The disadvantage, however, of opening a franchise is that your creativity is limited. In the U.S., research information and computer scientists earned an average salary of $131,490 yearly. Consider working with one of these scientists to gain knowledge and insight into your industry beforehand. If developing your strong brand and fully controlling the product design is important, consider rethinking opening a franchise.

4. Establish Clear Goals

To a great extent, the general goals of the franchisor are closely linked with yours. However, this is only as long as the general guidelines are concerned. Your goals are more aligned with your local market than the franchisor. In any case, the franchisor seeks to profit from selling you the right to run your business using its brand. Whether or not you’re making a lot of money, they make money either way, even when you decide to close your business. As a result, most franchisors are not keen on helping their franchises grow. Instead, they put most of their efforts into bringing on board new franchises and marketing their corporate stores. It’s your responsibility to grow your business, not the franchisor’s, which means setting goals that address your business’s success.

5. Talk To Other Franchisees

Don’t be in a rush to sign the contract. Get on the phone with several other franchisees and ask them about the business. If possible, visit their operations and engage them directly. If you can, talk to the employees as well. Ask them about the current value of their business. If it’s good, it should be worth twice or thrice its yearly revenue. For instance, businesses earning $100,000 yearly should be worth anywhere from $200,000 to $300,000.

People are willing to express their satisfaction, or otherwise, with a franchisor. They’ll share their experiences with a franchisor and cut the chase between the glorious sales pitch the franchisor has prepared for you and the reality on the ground. Ask the franchisee how they are faring financially, the duration it took them before breaking even, staff turnover, franchisor support, and autonomy in marketing decisions. However, the most important question is this: would they still choose the same franchisor if they did it all over again?

Any business can succeed if marketed right. A franchise is not different, but you must ensure you can duplicate a franchisor’s success in your area.