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What To Ask Before Buying A Franchise

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What To Ask Before Buying A Franchise

August 11th, 2020

Choosing to purchase a franchise can be a significant undertaking, one that requires careful thought before moving forward. Like any important decision, there are certain questions you should ask before reaching a conclusion.

Purchasing and running a franchise isn’t for everyone – so here’s what to ask before buying a franchise, to help you make up your mind.

Questions To Ask Yourself…

Would a franchise system suit my personality?

Are you hardworking, patient, driven, willing to learn and have great communication skills? Then a franchise career could certainly be for you. Other desirable qualities in a franchisee include:

  • Adaptability and willingness to learn
  • Driven and motivated
  • Systematic and a team player
  • People skills
  • Patience

Am I self-reliant and driven to run my own business?

You’ll absolutely need to be driven and have the motivation to run a franchise – you will, to a degree, be your own boss, so you’ll need the right attitude before taking on a franchise.

Why are you doing this?

Asking why you’re choosing to buy a franchise will help you determine your goals. If you have an entrepreneurial spirit, it could be a great career move for you. But if you’re looking to quickly make money, perhaps not.

Do I understand the financial and legal implications of franchising?

There is a lot to learn about franchising, particularly regarding finance and legalities. Do you know your rights and expectations as a franchisee? Do you know your responsibilities in regard to paying franchising fees and employees? The ACCC and Australian government have all the information you need – consulting their websites will greatly assist in helping you understand the implications of taking on a franchise.

Questions To Ask A Franchisor…

Once you understand your motivations for buying a franchise, it’s time to ask the franchisor a few questions to ensure you’re well-informed before entering into a contractual agreement.

How much do I need to invest before I open for business? And do you provide financial assistance?

It’s worth determining how much money you’ll need to outlay in your new franchise. From initial investment to marketing, find out what the franchisor will cover and outline your budget from there. Don’t forget to include working capital so you’re not short of cash in the early months.

What are the ongoing fees? And how do royalties work?

Understanding your ongoing financial commitments is essential to ensuring the financial health of your business. Most franchises require fees to be paid in exchange for their support – at Sleepy’s for example, these fees – franchise and marketing – are charged every month.

When can I expect to see a profit? And how much operating capital will I need in the beginning?

Most franchises require an initial monetary outlay plus additional operating capital until the franchise begins to turn a profit. Knowing how long it’ll take for your franchise to start making money is important, as this can help you to be better financially prepared. Preparatory cash flows are critical in the assessment of the franchise. Having done all the preparation does not guarantee success and a profit. This is why it is wise to keep a sum of reserve money at your disposal. Sleepy’s recommends a minimum of $50,000 over and above the initial investment.

How many locations do you have?

A franchise with numerous locations isn’t always a successful one – sometimes this can lead to a franchisor stretching their resources too thin and failing to adequately support their franchisees. Similarly, too small a franchise may not have the funds to help their franchisees. Understanding the current numbers in a franchise helps you decide whether there will be sufficient support for you to maximise your success.

What is your success rate and turnover?

Be sure to ask a franchisor not only the success rate of their franchisees, but also why any franchisees failed.

What sets you apart from your competitors?

You don’t want to be lost in a crowd. Ask the franchisor what the level of competition is and who the major competitors are. A franchisor should be able to tell you what sets them apart from others, and how they differ (in a good way!) from their competitors.

What support do you offer?

Most franchises will provide you with training during the early stages of setting up a business, but it’s worth finding out what other support they provide. Will there be opportunities for more training and networking with other franchisees, and what sort of support is provided on a daily basis? You’ll want to be comfortable the franchise is supporting you from the beginning and into the future.

Can I speak with current franchisees about their experience?

Yes, it is strongly recommended. Speaking with other franchisees will help you better understand the pros and cons of joining the business. By law, a franchisor should supply you with the contact details of past and present franchisees for a minimum period of three years – if they try to dissuade you from contacting them, reconsider working with them. You will find this information in the franchisor’s Disclosure Document.

At Sleepy’s, we’re always happy to discuss franchising opportunities, and encourage you to get in touch if you have any questions. Please call Guy Elliott on 0434 254 154.