The Educated Franchisee - Part 4 - What to Expect as a Franchisee

Posted on August 22, 2011 by Bryan Nisperos

Buying a franchise takes a lot of research and some basic understanding of a few things will help.  Remember to manage your limitations and leverage your strengths. In this article, part 4 of 6 from The Educated Franchisee we will make sure you know what to expect from a franchise.

First let's understand what you get when you buy a franchise.  Many think you buy "the brand name" but that's not true.  What you really buy, to put it simply, is the rights to use 'The System'.    This is why when choosing a franchise, it's so important to do your due diligence..  Your #1 question should be "Does this system predictably reduce my business risk?"  only if you can answer yes, should you move forward with the franchise.

The strengths of a franchise are numerous.  Let's discuss the big 3. The #1 reason people chose franchising over starting their own "brand" is a proven system.  You're paying to learn from their mistakes. If you find a successful system and follow it, your learning curve will be smoother, your cash flow break even will be more predictable and you're overall chances of success will be much higher.

The second factor is a franchisor's training and support because this is how you will learn to use the system and what happens when you really need help, so be sure you understand what you will be getting.  A great franchise will have extensive training and systems designed to get you through the learning curve as quick and successful as possible.

The third important aspect in your success is the power in numbers franchising offers.  This translates most in the brand's marketing budget, purchasing power and general economy of scale.  Marketing is a huge benefit of franchising.  National marketing is usually handled at the franchisor level and this saves you thousands of dollars and time and gets you a better product.   Purchasing consumable product works the same way, because your franchise negotiates to buy your products for multiple locations, they get a huge quantity discount that you share in.  These 2 factors alone can make your franchise much harder to compete against for the average mom and pop shop.

OK, now let's discuss some of the limitations of a franchise so you can be ready to manage them. 

The first is failure to follow the system.  WHAT?  You just said the system is the best part of buying the franchise....  It's also the #1 reason given for franchisees who fail.  So be sure you are committed to following the system (especially in the first 12 to 24 months) and check yourself along the way to see that you are on course.  Once you've been up and running and - successful - with the franchise, you can make suggestions to the franchisor on ways to improve.  But only then should you even think about changing things and have earned their respect and time to listen.

The second is royalty fees.  There are several fees involved in franchising.  There is usually a franchise fee paid one time and upfront.  But there is also an ongoing royalty fee that is paid on a regular basis.  Usually, the royalty is based on your revenue.  This recurring fee pays for all the corporate support - staffing, marketing/advertising, and reinvesting in the system to keep it up to par.  Without the fees, you couldn't have a strong brand, so you must be comfortable paying these fees and even believe in their necessity.

The last is false expectations.  Buying a franchise is not easier than starting a business.  It still takes hard work and time to be successful.  It helps you get through the learning curve faster, but you have to be willing to do the work.
Next article will discuss the FDD or Franchise Disclosure Document (formerly the UFOC), its importance, and how to navigate through it.  You can see the first 3 parts of this series here.

This article series is based on "The Educated Franchisee - The How-To Book for Choosing a Winning Franchise" by Rick Bisio - Available through all major resellers.  For more information on the book and Rick, please click here.