For many investors, running a branch of someone else’s established franchise (becoming a “franchisee”) is preferable to starting a franchise of their own. However, there are several big mistakes that potential franchisees make when opening new franchises.
The overarching problem is assuming that just because a brand has already been built, complete with all its operating procedures, marketing tactics, and infrastructure, that it’s easy to pick up and run for a new franchisee.
Here is a short guide to the mistakes that new franchisees often make by assuming that they won’t have to run their new franchise like a real business. Knowing these mistakes ahead of time can make you better prepared to face the responsibilities of your franchise business.
1. Failing to finance your venture properly
This is one of the first mistakes you can make. It’s essential that you don’t put off planning how you’re going to secure the proper finances to commit to this venture.
The reason is that unlike other big purchases, there’s a time-sensitive element to taking over a franchise. If you don’t start the process of paying and signing for the different elements (such as taking over operating procedures and scouting a location) soon enough, you could find yourself in an unfavorable position where you have to accept the terms of a bad deal.
A large down payment on the franchise or unfavorable contract terms are just a couple of the possible results of not funding your new franchise properly from the beginning.
This also applies to additional financing in the future. If your initial plan running the franchise doesn’t work and isn’t paying off, you need to make sure you have backup capital to keep the business afloat while you figure it out.
Failing to secure your financial situation before and during your purchase and takeover of franchise businesses could be detrimental to your ultimate success as a franchisee.
2. Not knowing what you’re buying
Buying into the best money-making franchises comes with a lot of restrictions and rules that a new franchisee needs to research beforehand.
Not only are you buying responsibility for the physical infrastructure of a franchise, but you are also buying the operating procedures, marketing systems, and formal training infrastructure. All these operations are your responsibility when you buy into a new franchise.
You also have to think about the franchising fee involved with signing the franchise agreement. The most lucrative franchise opportunities come with hefty fees that are extra on top of buying the procedures, manual, license, and building.
The average for these fees is around $35,000 but the top franchises can cost as much as $100,000 for the license alone. Not considering this when you plan to invest in a new franchise is one of the biggest mistakes you can make as a potential franchisee.
3. Being too confident
As a business investor, you have to trust your instincts on many occasions, particularly in terms of what chances you’re going to take on a new business. However, in matters of how franchises are run and which you should invest in, you may not be able to afford to be too confident.
Before making needless (and costly) mistakes, find a successful franchisee and learn from them. By doing your own research, you can have a fallback when you’re on the job or training new employees and you don’t know what to do. Independent experience shadowing existing franchisees can be essential to your successful takeover of new franchises.
Finally, you may have a gut feeling about a restaurant franchise opportunity and jump at the chance without researching its history. However, if you look deeper later and find a history of franchisees with legal grievances with the franchise, you’ll regret an over-confident initial investment.
4. Ignoring location
After you’ve researched the franchise and you know that this is the opportunity for you, including all the regulations, fees, and procedure responsibilities that come with it, you can still make a big mistake by ignoring your franchise’s location.
Scouting out a perfect location should take time and expertise. If you’re in a rush to get this franchise up and running, you’re susceptible to making dumb mistakes with it.
You need to visit your potential sites yourself and ask essential questions about the locations’ viability for your new restaurant franchise. You need to ask if your building will have easy access from main roads and how much traffic there is on those roads on a particular day. In terms of the actual geography of the location, you need to look at how visible your building will be.
You might think that you’ve found the perfect location after doing diligent research but don’t have enough time to secure it. In that case, one of the biggest mistakes you can make in starting your new franchise is to settle for somewhere else. It would be much more advantageous to ask your franchisor for extra time instead.
5. Changing procedures
The best money-making franchises are successful for a reason. Their operating procedures, employee training systems, and marketing paradigms have all been tested for success.
Changing these procedures could be detrimental not only to the efficient running of the franchise but also to your relationship with the franchisor. By becoming their franchisee, you become responsible not only for one building but for their whole brand.
Failing to meet their standards because you think changing the procedures is the right thing to do is one of the biggest mistakes a new franchisee can make.
The owners of new franchises have a lot on their plates. Avoiding these key mistakes can help you make the right purchase, successfully run the operating procedures to the franchisor’s specifications, and have a financial backup plan in case things start to fail.
By taking precautions beforehand in finances and locations and respecting the established procedures once you become a franchisee, you will be better prepared to take this opportunity and turn it into success.