What are some of the biggest mistakes franchisees make?
31 August 2017
The biggest mistake franchisees make is they fall in love with the system before they have invested and very quickly can dismiss any negative information they hear. They get emotionally attached to the system they're looking to buy into, and they put blinkers on. You have to remain objective throughout the whole process, and the way to do this is to have someone working with you - whether it be an adviser, a friend or a mentor - whose job is to remain independent of you. They need to play devil's advocate, and ask the tough questions you might not be willing to ask yourself.
The other mistake franchisees make is not preparing a business plan. You're going to need to do that if you're going to borrow the money anyway, you actually need to go through and work out financially what could this business do? Do I understand the market and industries I'm buying into? Do I understand the competitors in the area? Do I understand how the operation we're going to buy is going to work in this area by looking at the demographics? Go on an educational journey and really do your homework to pull a business plan together.
Another really big mistake is they don't get advice. Even though franchisees are required to get advice by the code of conduct, they really don't engage with advisors around understanding what they're truly buying. They do the absolute minimum they have to. I would suggest franchisees get good legal advice and good accounting advice from someone who's experienced with franchising and understands the industry.
One of the challenges franchisees have is that the franchisors have to give you all these documents, including a code of conduct, an agreement, a disclosure document etc. A lot of franchisees come in for advice and they haven't even read them. You need to make sure you ask questions and understand what you're buying. I'm surprised at how many don't speak to other franchisees and who don't demand support early enough from the franchisor if things don't feel right.