Buying a franchise is an excellent way to start a business, especially if you haven’t had business experience in the past. Many successful business owners of today started their journey by buying a single franchise unit and becoming a multi-unit operator or, in some cases, the owner of an entire region’s units. Investing in a franchise enables you to leverage the proven business that someone else has created without having to reinvent the wheel, in exchange for a small commission. It also reduces the risk of failure—when you consider that a large percentage of small businesses fail within their first three years of existence, investing in a franchise is definitely a safer choice.
While investing in a franchise is safer, it does not eliminate risk completely. There are examples of franchises that have gone out of business and left the franchisees unemployed. It is important that you do your homework before investing in a franchise model by talking to existing and past franchisees. Doing so ensures that you have a better idea of what you can expect after investing your hard-earned money. One of the top global fitness brands, F45 Training, asked us to tell you about the five signs of a good investment opportunity that you should consider before you buy a franchise.
- Growth – As any business owner can tell you, it is much more fun to operate a business that is growing than one that is declining or stagnant. When looking into a franchise, you should consider the growth of both the industry and the franchise. Industries go through the cycle of growth and decline depending on economic conditions and consumer preference. It is best to get into a business that is aligned with current consumer taste and is sure to stay afloat during the ups and downs of the economic cycle. Similarly, you should also make sure the franchise you are considering has a dominant position in the industry and is growing. If the growth rate is declining, it is a sign that the business is becoming saturated and future growth may be limited.
- Innovation – Innovation is the backbone of growth for any business. It helps the business distinguish itself from competitors and keeps customers coming back to your business. Innovation can come in many forms. The franchise could have developed a product or service that no one else had thought about before, or invented an innovative business model that reduces the cost of business and saves customers money. Whatever the form of innovation, the franchise should have something that sets it apart from its competitors.
- Marketing – No matter what business you are in, marketing is essential in the promotion of that business. A franchise operation is able to leverage its scale to do marketing via a number of channels – both online and offline. You should ensure that the franchise you’re investing in spends sufficiently to market its products or services and targets the correct customer base. You should also ensure that at least some of the marketing is directed towards the local customer base. A balance of both national and local marketing is needed for success.
- Operating Rules – Some franchises are famous for imposing onerous rules and conditions on their franchisees. While it is true that the franchises need to develop and enforce rules to maintain quality and consistency, the rules should not be so strict that they take up all of your time and effort and increase your operating costs. You should check to ensure that the franchise doesn’t ask its franchisees to spend significant amounts of money on renovation and other expenditures, as this may be counterintuitive to working hard and being profitable.
- Fees – Finally, you should consider the franchise fees you are required to pay to the franchise. The fees can come in many forms – royalties, marketing costs, market development funds, etc. While it is expected that you will need to pay some percentage of your sales or earnings as fees, the amount should be reasonable and should commensurate with the value you are getting from the franchise.
As you can see, there are a number of things you need to consider before investing your money into a franchise. Make sure you do your homework beforehand to avoid failure.
