How do you invest in a franchise successfully? The Franchise King, Joel Libava, has an excellent post with a Powerful 10-Step Checklist to Use Before you Buy the Franchise of Your Dreams. I love posts like the one Joel has written. His post has honest, straight-forward advice every person investing in a franchise should follow. The problem? So many investing in a franchise fail to do it.
The biggest piece of advice Joel touches on is “you have got to do the work.” Not only up front in your research but also as you move forward in the business. You would not believe how many times I have talked with people that essentially believe the franchise is going to do it all for you. Just know when you are investing in a franchise, the success of the operation falls squarely on your individual shoulders. No franchise can do it all for you. If it is to be, it is definitely up to you!
Another suggestion from Joel is to have 6 to 12 months of capital built up to survive during the start-up and lean times. You will have considerable expense in starting your franchise. But you need more than just the initial investment in order to be successful. The number one reason I see business people fail with franchises is that they are undercapitalized. The person may have just enough money to get in business, but do not have the funds for the long haul. Don’t be one of those people. Make sure you have enough capital to last through an initial ramp up period of several months.
Finally, Joel suggests seeing a franchise attorney. He suggests this EVEN IF there is no possibility the franchisor will negotiate the franchise agreement. Why?
So you have a complete understanding of the terms of the agreement, including what the franchisor is responsible for and what you are-as a franchisee. Plus, do you really want to pour over pages and pages of legal terms, some of which only a lawyer can understand?
In practice I have found that even those clients who could not negotiate their franchise agreement benefited from a review. It gave them a far better understanding of the business issues, and potential pain points. It also opened their minds to aspects of the business they had not considered previously. Plus, you are able to establish a relationship with an advisor who can likely help you on other aspects of the business such as forming a corporation or LLC, reviewing your lease, and help you draft employment policies and procedures.
Joel is one of the best in the franchise business. I highly recommend reading his post and reviewing his site. He has lots of good franchise investment advice and helpful tips.