8 Costly Mistakes to Avoid When Buying a Franchise

Buying a franchise can be an easy and straightforward way to dive into your entrepreneurial dreams. Consider that, with a franchise, you are buying into a proven business model and most of the hard work required upfront has been done for you. You can buy into a widely known and respected brand and capitalize on the brand awareness and support from headquarters.

However, when purchasing a franchise, it is easy to bypass the red tape and make mistakes that can cost you in the long run.

Here are 8 costly mistakes to avoid when buying a franchise.

Not Doing Your Market Research

A successful franchise in your region does not guarantee that your specific location will be successful. You still need to do market research to determine viability of the franchise in your desired locale. Once you have done the appropriate research and found out that this concept will do well, now you’ll want to review the franchisor business plan. Why? You want to ensure that the business plan is something that makes sense for your situation. Conducting market research will save you a lot of heartache in the long run.

Buying into the Latest Trend

We get it. Poke bowl restaurants and cute tea shops are fun and trendy concepts. However, one thing to evaluate when choosing a franchise is longevity. Will the current franchise trend hold up in the years to come? Franchise directories like to promote current “hot” franchises, but these are meaningless for the most part. Investing in a tried-and-true franchise is more likely to be the better bet. If you have done your local market research, evaluated the franchisor business plan, and still want to pursue a trendy franchise, then you are better off than someone who is choosing a trendy franchise simply for the novelty.

Hiring an Attorney Too Late

Hiring an attorney with experience representing franchisees should be done before you sign the franchise disclosure document. The value that an experienced attorney brings is immeasurable. He or she can help translate the difficult legal language of the agreement, advise on business entity structure, and guide you pre- and post-purchase.

Failing to Read Through the Franchise Disclosure Document

A critical step in the franchise buying process is validation of the franchise. The franchise disclosure document is a lengthy document that lays out everything you will need to know, including fees, how to manage the operation, reporting, restrictions, current franchisees, and so much more. During the review of the FDD, you will be able to evaluate if the franchise is in alignment with how you want to do business. It is important that you understand every clause before proceeding with the purchase. As mentioned above, this is where an attorney will become helpful.

You will want to contact a few of the existing and former franchisees to learn about their experience within the franchise system. While you cannot reasonably expect every franchisee to be 100% satisfied, you will want to approach the franchisor with the information found so you can get feedback. Failing to validate the franchise is a big mistake that can be costly down the road.

Believing Bigger is Better

A common assumption is that the larger the franchise, the more successful it must be. Therefore, you let your guard down and ignore warning signs or fail to do proper research. Large franchises can reach a point of market saturation and offer less economic value due to smaller territories. There is also the risk of poor reputation with a mega franchise system. For example, a certain restaurant franchise that we all know and love, has a reputation for their ice cream machines always being broke. This has led to many memes and viral social media posts mocking the franchise. A smaller franchise that is financially profitable and with a good reputation can also provide an excellent opportunity.

No Business Planning

The popular quote from Alan Lakein is “if you fail to plan, you plan to fail.” There is no truer sentiment in business.  While buying a franchise comes with a set of systems and procedures in place, you will still need to do yearly, quarterly, and monthly business planning. A business plan will help you plan future launches, marketing campaigns, revenue projections, and keep you on track in terms what needs to be done and how to do it.

Not Checking Core Values

Simon Sinek is famous for his concept that people don’t buy what you do, they buy why you do it. The ‘why’ he is referring to is your beliefs and values. It is important to know why and how the franchise came to be in existence. If a franchise is in it only for the money or the values differ from your, you will have a rough time down the road.

You Go Rogue

One of the benefits of buying into a franchise is the brand awareness and proven business model. So, while you think the color scheme could be improved or the menu expanded, it is best to bring it up to headquarters instead of going rogue. A consequence of implementing unapproved changes to the business could be turning off customers who are loyal to the brand or violating your franchisee terms of agreement.

By avoiding these 8 costly mistakes when opening a franchise, you will increase your odds of succeeding with your chosen franchise.

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