Buying into a franchise is a great way to be part of a recognised brand with the benefit of lower advertising outlay. It could be your first step into your foray of being an entrepreneur.
According to the website Business Idea Trends, the six best franchise-types for 2016 are: personal services, lodging, business services, quick-service restaurants, retail products and services and commercial and residential services.
Here are some more tips to consider before quit your day-job and buy a franchise:
You must be sure that you have a rough idea of your expectations of projected income gained from obtaining this franchise. Intangible satisfaction expectation may not sustain your enthusiasm in following through with your new franchise.
Get the support of your family
The success of your franchise is also the acceptance of your immediate family in supporting your effort. It is a simple rule.
Take, for instance, if you buy a franchise which is part of a book-store chain, and your family does not even visit it once. Will you have the determination to see it through? If you need to take a short vacation, will your family member help to run the franchise in your place? Can your inner circle be passionate enough to listen to your enthused rantings about the day's takings or unforgettable customers?
Know your strengths and expertise
A franchise should not just be a means for you to start your first business. It is preferable that you have a recognised skill or interest in the franchise before parting with the franchise initial capital. Maybe take a personality test to determine if you have the tenacity to follow through with the franchise. You can take these online tests for free and read more about your own suitability.
Unique proposition of the franchise
The franchise should be protected by a patent or intellectual property law. This will create significant barriers to entry. If not, you have to be sure that there are enough people within your country who recognise and willing to pay for the product or service.
A franchise can be a huge success in a particular geographical region but has less acceptance in another country. Thus it is crucial that you inspect the relevance of the market research that has been conducted by the franchise company especially in the area of when the market research was conducted and the demographics of the sample set. Check if the market research shows current trends and scrutinise the sample set that was taken to get to the results.
Do not get a franchise that does not seem to have a recognised competitor or an industry that can be classified - unless you are interested in being a master franchiser or have a first-mover advantage. The market may be slow to accept your franchise and you may find it hard to re-coup your initial investment within the agreed contractual period.
It definitely pays to get a legal expert to read the franchise contract fine-print. You do not want to be accused of violating some of the franchise terms of agreement and pay an unnecessary penalty.
Get new contacts
Do not just depend on the contact database that may be provided by the franchise owner. You should also try to generate new contacts as the franchise contact database may also be used by new franchisees. You can also consider using social media to boost your contact database.
Unique ways of promotion
Buying a franchise should not mean that you lose your competitiveness and innovativeness. You should find new ways of promoting your franchise through flyers, website and even various media. But remember to inform the franchise owner of your effort and get approval.
You should also team-up with the franchise owner to joint promote in trade fairs and trade directories. You can also volunteer to start a dedicated franchise newsletter and be a regular article contributor. You can also provide new ideas that may help improve the franchise but you have to be mindful not to be overly pushy for change.
With all this in mind, you are now at the crossroads - is a franchise suitable for you?
Here is a quick checklist for you to make the final decision:
- Do you want to lead an independent life?
- Are you aware that many franchises fail during the first 2 years of operation?
- Do you have the support of your family when you choose a franchise?
- Do you know enough of the franchise's industry?
- Are you resourceful enough to use internet and trade publications to supplement your understanding of the franchise?
- Do you have your own database of contacts that can support your franchise?
- Do you have enough financial liquidity to pay for the franchise initial investment?
- Along the same lines, do you have enough liquidity to spare if there are extra expenses needed for promotional purposes?
- Do you agree with the organizational values of the franchise?
- Are you confident in meeting the various targets set out by the franchise?
- Are you diligent in following the various conditions of the franchise?
- Do you have an exit strategy when the franchise has helped you realise your personal targets?
- Are you willing to travel to promote the franchise with its owner in trade conferences?
For simplicity, all questions are crafted to be answered as "yes" - after finishing this checklist, you can then seriously consider being part of a franchise.
Colin Ong Tau Shien is a current NTU adjunct lecturer in entrepreneurship/e-commerce, and also a popular A-levels tutor in economics and general paper.