3 ways to avoid a franchise disaster

By Nick Hall | 22 Jul 2019 View comments

Want to get into business for yourself but can’t shake the lingering doubts? While it’s normal to feel anxious about a new opportunity, it is crucial that you investigate your concerns and alleviate your fears prior to signing anything.

The most important aspect of starting any business is getting the basics right. You must have a firm understanding of what your purpose, market value and goals are.

This process starts long before you open the doors and welcome customers in. It’s all part of an exercise known as due diligence, and it can be the difference between a successful venture and a franchise disaster.

If you are considering entering into a franchise, you must take the time to truly investigate your prospective business model.

Here’s three of most important ways you can avoid a franchise disaster before it’s too late. 

Seek franchise legal advice

Having an understanding of your legal obligations is critical to your ongoing operation as a franchisee. If you want to avoid a franchise disaster, Inside Franchise Business suggests seeking advice from a franchise specific lawyer.

Remember, franchise law is extremely specialised and should be treated as such. The family lawyer will not suffice, you must visit a lawyer with an extensive background in the franchise sector.

Legal advice will help you to navigate the often-confusing clauses in your prospective opportunity’s franchise agreement. From here, you will be able to establish your requirements as a franchise partner and what, if any, amendments you should ask for.

Prior to signing the agreement, nothing is set in stone. At this point it is still a negotiation, your franchise lawyer can help you determine which issues to push the franchisor on.

Calculate the total investment cost

Just because a franchise has an initial cost of $50,000 does not mean that you can hand over $50,000 and be on your way.

Many franchise operations also have additional fees that you must determine before signing the agreement. These include; marketing fees, royalty fees, franchise fees, training requirements and fitout costs

Even after all these costs are accounted for, it is crucial that you recognise the importance of operating costs. Things such as rent, electricity and insurance are ongoing, so be sure to quiz your franchisor about the finer details.

Consult the existing network

Under the terms of Franchise Code of Conduct, franchisors are required to provide prospective partners with a disclosure document.

This document contains a wealth of valuable information about your prospective purchase, not the least of which being the contact information of existing franchisees.

Speaking with the current crop of franchisees is an eye-opening exercise that can help you to make sense of the day-to-day realities of the business. Ask them specific questions relating to the support they received from the franchisor, whether the training was comprehensive enough and what issues they have encountered since opening.

These conversations are a great way to kickstart your understanding of the business as a whole, but they should not end once the doors are open. Be sure to keep direct lines of communication with the franchise network.

This will allow you to navigate any ongoing issues you encounter throughout the course of your operation.

Avoiding a franchise disaster

Running a business is a difficult and time-consuming venture. There will be long nights and high stress involved, however it’s crucial that you rely on the support of your franchisor and franchisee network when times get tough.

After all, the primary reason entrepreneurs choose franchising over independent operation is additional support.

If you want to avoid a franchise disaster, it pays to do your homework, seek professional advice and ask the hard questions, both of the franchisor and yourself.