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Topics & Tips
Franchising
Important Considerations when Buying a Franchise
Many people dream of starting their own business or a franchise. They
think it's just a matter of providing a service they are
good at. For example, Tom is a good cook. All his
friends tell him how brilliant his cooking is and how he
should open a restaurant. Tom thinks that's a brilliant
idea.
But setting up a business is not that easy. What are the
laws governing the sale of your product? Are there
Health and safety rules you have to follow? What kind of
competition do you face? What about Customs and Excise
regulations? (e.g. if Tom buys a kilo bag of peas, how
many meals will he serve with that kilo bag?
Customs and Excise will know the answer precisely. So
Tom can't have different members of staff placing what
they think is a reasonable amount of peas on a plate.)
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There are many things that Tom needs to know and to
learn. A franchise business could be his answer because they will
(should) have done all the research for him and they
will provide complete training in every aspect of the
business.
Agreeing to buy into a franchise business usually means you are
buying into a well known and respected 'named' company.
The parent company will want to protect their name by
ensuring you do everything their (tried and tested) way.
There will be little or no room for individualization.
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Buying into an internationally recognized company such
as Domino's or Burger King will mean that you will be
told precisely how to produce the food.
When you approach any franchise they will tell you how
marvellous they are and they are better than the rest.
FIRST CLUE: Approach at least three franchises in
your chosen area. Closely compare the similarities and
the differences.
Each will charge a fee to buy into their franchise.
SECOND CLUE: How much will they charge upfront?
Do they then take a percentage of your 'takings' or
'profits'? What are you paying for? Do you pay extra for
logos, printed publicity materials, uniforms required to
be worn by staff?
What support will they offer you before startup?
THIRD CLUE: Will they help you assess your likely
profitability in the area you want to set up your
franchise? Will they help you find suitable
premises/negotiate a reasonable rent? Do they have
materials available for the local council if it's
required?
What support will they offer on start-up?
FOURTH CLUE: Will they help prepare the launch,
and will they be there to answer any questions? Do they
have ready-made press releases and advertisements? If
your local council requires you submit policies and
procedures before placing you on a 'preferred providers'
list, do they have these?
What training do they provide for you and your staff?
FIFTH CLUE: Do they have a dedicated training
program? Does this cost extra?
How much should you charge for your service and how much
should you pay your staff?
SIXTH CLUE: Have they done (or helped you to do)
some local research to determine the best price for your
product, number of staff you will need and sufficient
remuneration for them - and you.
Are you an accountant? Once you set up your business you
will have to account for every penny you spend and make.
You don't want to waste too much by paying too much in
taxes.
SEVENTH CLUE: What help can your franchisor
provide in helping you find a good accountant. You may
have to interview a few accountants - what help will you
get in knowing the right questions to ask?
Many local companies feel that once they have set up
three or four successful operations in their own area
they can make much more money by helping others do the
same. They create a franchise. But not all franchise
companies are equal.
It is incumbent on you to do some research. How long
have they been in business? What relevant qualifications
do their head office staff possess? Are these
qualifications relevant to the franchise? Have they
expanded beyond their immediate area? Are they willing
to give you a list of every franchisee so that you can
phone them or visit them and get their honest opinions
about the company?
Having a franchise means you can fulfill your dreams of
providing a service you love - but there will be some
restrictions to your autonomy - you will not be able to
run the business you want to. But then, you may not make
a profit unless you know every aspect of business inside
out and it's useful to have some experts on hand to help
you.
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