In my previous article, I looked at the discovery process of buying a franchise – Click here to view.
Now you need to look in more detail at the business itself, making sure that you understand the industry sector. You will need to put a business plan together to ensure that you can get the funding you need to go ahead.
Often, your franchisor will be able to provide you with some templates to help and may be able to assist with some of the research as well. At Revive! we have a template business plan and financial forecasting spreadsheets, as well as some notes to help prospective franchisees with their research.
This research and planning is a vital part of getting you set up to make a success of your future business. If you don’t have that insight into the challenges and opportunities, you might find it much harder to understand the pressures as your business launches.
Customer base
Who are your typical customers? Is this a consumer facing business where your customers are individuals buying for themselves or B2B where you will be dealing with other businesses, not the general public? Or maybe a mix? At Revive! we provide our services to the public, as well as car dealerships, insurance, and fleet companies so there is a wide customer base.
Are you in an established market or is the product or service a new one that hasn’t had much history here? It can be very rewarding to get in early to provide a new product or service when there isn’t much competition, but it can also be much riskier. Do you know that the demand is there?
Is it luxury spend or an emergency purchase? Would a customer need to borrow money to fund the purchase or is it likely to be within easy reach for most customers?
Business overheads
This is an area where you need to be clear about what running your new franchise could cost. Getting sales and new customers is vital of course, but making a profit is also key to your survival!
If you will be employing staff, what qualifications or experience will you be looking for? Do you have any information about typical salaries? It is always a good idea to check the pay rates that similar roles are advertised at locally, as there can be regional differences.
Again, your franchisor will often be able to help you with your research as they should have information about typical salary levels and the type of experience your staff will need.
Some franchises operate from commercial premises which will increase overheads that the business must cover. You may need professional advice about finding the right premises and certainly about entering into any leases, as that will normally commit you to paying the rent for a period of time.
Do you need to hold stock, where do you buy that from? Sometimes that may be purchased through the franchisor, or from selected suppliers. Are there regulations about the stock, eg safe food storage, refrigeration or flammable products? All of this is vital for you to understand your costs and you should find that your franchisor will provide guidance and training to help.
Franchise Contract
Part of your research needs to include understanding the terms of the franchise agreement. Getting a franchise contract report from an experienced franchise lawyer will be worth the cost and in the scheme of things, is relatively inexpensive. The bfa website has a list of all their accredited lawyers who will be able to prepare a report for you. It is unlikely you will be able to get the contract amended as all franchisees should be on the same terms, but you need to know and understand exactly what obligations you will be taking on before you sign.
So, we have now covered two of the three stages – Discovery and Research – and in my next article, I’ll be covering the Planning aspect in more detail. In particular, we’ll look at the financials which form such an important part of the decision making around buying a franchise.
Taking this time at the outset to research and plan is crucial so don’t be put off by the work involved – you are giving yourself the best chance of success in the future!
