In our conversations with prospective franchisees, we find that many of them assume they know a lot of things about franchises. Whether that is true or not, they have this belief because they have been visiting brick-and-mortar retail franchises for years.
For instance, many people know restaurant franchises, or other retail franchises, so that’s what they think of franchising in general. The truth is that there’s a wide range of franchise businesses in over 100 industries, including those that are cheaper or more flexible than storefront franchises.
So, there are many things you still need to know about buying a franchise. We have found that many people looking to start a franchise are surprised when we tell them this. Understanding the things below has given them a new perspective on the discovery process and allowed them to find a franchise that suits their interests, lifestyle, and budget.
Here are the things you should know before investing in a franchise
Franchising is all about systems
Franchising involves following the systems the franchisor has designed to make operating the business easier, less expensive, and probably more financially rewarding. The caveat here is that it is impossible to know how well each franchise owner will be able to use the systems, which are important to operate the business successfully.
There is a division of labor
The franchisee and franchisor share responsibilities. The franchisor focuses on the bigger picture regarding what’s happening in the broader economy, including the competition, technology, regulations/laws, etc., and adjusts accordingly. This gives franchise owners the chance to concentrate on penetrating the local markets while keeping the parent company informed of their experiences. For instance, franchisors can help look for new equipment that uses cutting-edge technology and discuss pricing on behalf of their franchisees.
Operating a franchise doesn’t mean working a business
The responsibilities of a franchise owner include hiring, training, buying supplies, and running the business profitably (using the franchisor’s systems). Sometimes, the franchisee may have to do the work, but most times, they will perform management duties to ensure the business operates smoothly. For instance, if it’s a restaurant franchise, the owner will probably not be serving customers but recruiting people who will work those jobs, buying necessary supplies, performing quality control work, etc.
The franchisor’s major income doesn’t come from fees
Good franchisors make little to no money from franchise fees and other initial fees. They use these fees to pay the workers, do marketing, and so on. Most of the franchisor’s income comes from the recurring royalty fees that franchise owners pay. This implies that the franchisor makes money when their franchisees make money. So, it’s clear that the franchisor has a vested interest in the success of the franchisees.
Franchisors screen those who want to buy a franchise
Franchisors are choosy when it comes to giving territory to franchisees. Because franchisors have financial reasons to want franchisees to succeed, they only want to partner with the most suitable candidates for the job. Franchisors aren’t looking for someone who will pay the initial fees, only to fail when they start operation. Instead, they want people who will be able to succeed in the business.
Franchisees have to follow the systems
Franchisors don’t want anyone who will not follow their proven systems. So, they observe actions that can suggest a candidate’s willingness to stick to the systems before awarding territory. One of the ways they know this is by watching how well the potential franchisee follows the systems in the franchise discovery process. Does the candidate prepare well for meetings? Did he do what he said he would do for the meeting? Is he always on time?
Although good franchisees have an entrepreneurial mindset, they are not “true” entrepreneurs
“Real” entrepreneurs are innovative and like to take risks. They are always coming up with new ideas and want to change things, but they suck at implementing systems. Entrepreneurs think outside the box and don’t usually like to use another person’s systems or plans. That’s why they hardly make good franchise owners and should never consider franchising. A good franchise candidate is someone who has an entrepreneurial mindset but is willing to follow systems or procedures.
