Across countries, continents, time, and space if there’s a business model every businessperson would like to invest in, it is that of buying an existing franchise. Without getting into the hassles of managing everything and yet knowing fully well the extent of profitability is one of the biggest USPs of this model of business. That said, it is still a business deal which can go either way if things don’t go as planned. From experience it is rather clear that one of the main reasons behind a franchise not working in favour of the franchise-buyer is the lack of one’s ability or interest in reading between the lines, and a general lack of foresight into understanding business-models, related industries, and the economy. There are facts that one needs to know before entering into a franchise model of which some are mentioned below.
- Read the fine print
More known the brand, harsher could be the terms and condition for the franchise-buyer given that the seller knows its worth, and knows that there are others standing in the line where the present incumbent bows out. Issues like who would foot the cost of putting in place things like the infrastructure (shops, establishment, equipment etc) and who would look after their upkeep. Ownership issues of equipment, place etc are issues that need to be sorted from the very besides being clear on issues of ownerships and leases.
- Payment for the franchise use is also an area which should be crystal clear from even before one enters into the agreement. Will it be profit-share, a certain percentage of the sales/ profits, a fixed sum over a certain number of years, a mix of fixed and variable etc have to be established early on.
- Issues with training before and after entering!
Brands including McDonald’s, KFC and the likes, besides those like Pepsi and Coke to mention some have extensive pre-&-post agreement trainings on various aspects of operating a franchise outlet. Responsibility for these including their funding, arranging for the right trainers, training materials, their standards etc are things that can bring a franchise business to naught from the word go where things aren’t clarified in advance.
- Know the areas and products that the franchise would deal with!
A franchise owner would want his/ her/ their products/ services and related information to reach the widest possible audience which could include the entire planet. This, quite realistically, can’t possibly be done by one person, a single entity or organization. It thus needs a network of franchisees to cover an area effectively. And it’s in demarcating areas that the problem starts if the franchise seller does not take due care of the buyers’ concerns. Besides strictly demarcating areas, what needs to be done is to have a penalty policy where neighbouring franchise users are found violating the agreement and selling within others’ areas.
- Know the history of the organization and the industry.
A franchise for the franchise seller is a business which the latter would try and milk to the extent possible which in some cases could mean obfuscating certain inconvenient facts and figures. It’s for this reason that the franchise buyer should be very aware of not only the franchise owner, their stakes and status, but also the status of the organization as a whole and of the industry.
- Clearly know the exit policy.
It is when things are pink ‘n’ rosy that the most contentious issues get ferreted out with ease which in the case of a franchise business is the knowledge of the latter’s exit policy. Knowing this at the right time can keep the buyer from getting into difficult places from where extricating oneself becomes extremely difficult. In some case it’s the exit policy which bars entities from entering given that the former has some very onerous terms. Knowing them at the right time and taking the right steps, help.