Becoming a franchisee – 8 things you need to know

Why become a franchisee?
So, you’re considering becoming a franchisee? Before you jump on in and sign the franchise agreement, there are a few things you need to think about. Here, we take a look at eight questions you should ask yourself to ensure you’re fully prepared for your future career.

1. Do you know what being a franchisee entails?
The first question you’ve got to ask yourself is whether you actually know what being a franchisee truly entails. Many people become franchisees without truly understanding what the role involves. Many enter into the franchise agreement with an idealised perception of what franchise ownership means. Yes, you’ll run your own business. But it’s not the same as managing an independent start-up.

As a franchisee, you’ll have to follow a strict business plan and regularly report to the franchisor. With franchising, there are few of the freedoms associated with traditional business ownership. At first, you’ll have to work long hours and put in a great deal of hard work. It’s not easy and it could be a considerable amount of time before you’re comfortable stepping back and allowing others to take on a little more responsibility.

2. Are you in the financial situation to become a franchisee?
It’s also necessary to ask yourself whether you’re in the financial position to be a franchise owner. This means looking at the true cost of franchise ownership and calculating whether it’s a financially viable proposition. The cost of a franchise is more than just the franchise fee. There are likely to be equipment, property, management, and advisory costs to cover. There’s also the working capital required to keep your business afloat through the first few months when you’re not making any profit. All in all, the total investment cost is likely to be considerably higher than most franchises advertise.

3. Can you sustain yourself without guaranteed income?
The vast majority of franchises take months to turn a profit. Even then, it might not be sufficient a profit margin to support you, let alone a family. In some cases, it can take a year or more before the franchise is turning enough of a profit for you to draw a decent wage. In the meantime, you’re going to have to support yourself somehow. It may be that you continue working part-time in your old career. It may be that you ensure you’ve saved enough to see you through this period. It may be that you have to make considerable changes to your lifestyle and spending habits. Or it may be that you have to put your franchise plans on hold until you can ensure you have the finances in place to make it work.

4. Are you equipped to become a franchisee?
Franchise ownership requires you to develop a number of different skills and qualities. Success will depend on your ability to dedicate yourself to the business, too. Every franchise requires its franchisees to possess a different skillset. Some will require franchisees to have earned specific qualifications. Before you get too excited about signing the franchise contract, you should contact the franchisor and request the relevant information. There’s nothing worse than finding out that you’re not suitably qualified for your dream franchise at the last moment.

5. How many years are you willing to commit to franchising?
Franchise ownership can be a seriously long commitment. Most franchise agreements are for a five-year term, after which the franchisee is offered a renewal. In many cases, it will take a couple of years for the franchise unit to begin turning a decent profit. This means that you’ll need to sign at least two franchise agreements – for a total of 10 years’ ownership – in order to make it work. Though you may sell the franchise before then, it’s still a considerable amount of time to commit to a business.

6. What type of franchise are you looking for?
There are numerous different types of franchise to choose from and many different ways in which you can work. The first decision is between part-time and full-time franchises. Then you’ll need to choose whether you want to look at product-based, service-based, or online franchises. Then you can narrow it down to a particular industry and, finally, to a handful of franchises. Knowing what type of franchise you’re looking for can often stop you from jumping to conclusions and making a decision that isn’t in your best interest. If you’re interested in owning a franchise, you need to specifically search out businesses that meet your requirements – not just make do with the first franchise that comes along.

7. Do you understand your legal responsibilities?
As a franchisee, you’ll have a number of legal responsibilities. The vast majority of these will be set out in the franchise agreement. However, they’re likely to include the amount you’re expected to pay in royalty fees, the standards you must maintain, and the legal procedures and processes that are utilised in certain situations (e.g. franchise resales or a franchisee leaving the franchise). It’s absolutely vital that you understand your legal responsibilities before you sign any documents. If you don’t, you could quickly find yourself in a tricky position, both financially and legally.

8. Have you done your research?
Finally, you need to ask yourself whether you’ve done your research and fully comprehend what you’re signing up to. This includes performing research into the franchise, your franchisor, existing and ex-franchisees, as well as the necessary due diligence and planning for financial applications. Becoming a franchisee is all about giving yourself the best chance of business success. The only way to do this is by ensuring that you’re making informed decisions. Research is an essential part of the franchise process. Without it, you’re likely to take a wrong step somewhere along the line.

As you can see, there are a number of important questions you have to ask yourself before you become a franchisee. Though there’s a considerable amount of information available to prospective franchisees, many enter into the process unprepared or with unrealistic expectations. The best way you can prepare for franchise ownership is by getting an honest picture of the demands of the franchising system and what life is really like for franchisees.