Tuesday, November 6, 2007

Choosing The Right Franchisor

When you start a new business, you would be mostly advised to venture into a field that you either understand or are passionate about. If you are looking to grow an existing business, you might diversify into a related area. But sometimes, business owners plunge headlong into a totally new field by buying a franchise. If you wish to follow suit, choose the opportunity with care, since they’re not all alike.

Although a franchise can give you a launching pad to commence business, there’s still a great deal of groundwork to be done prior to signing up. Investigating the credentials of the franchisor has to be among your topmost priorities at this stage.

The following guidelines could prove useful when you’re negotiating to buy a franchise:

How eager is the franchisor? This will be apparent right at the negotiation stage itself. In a franchised business, the franchisor has to be the driving force if the brand is to be successful. A relaxed or complacent attitude could signal that the parent company is vulnerable to a strike from competitors. Similarly, if the franchisor is non-responsive, it could indicate that they won’t pay you enough attention after you sign up.

Look for other opportunities if the chemistry doesn’t seem right.

What are their growth plans? While you would like to ally with a brand that has an aggressive growth agenda, remember that it could be a double edged sword. Every franchisor will target the maximum number of sign-ups possible and that could work against the franchisee’s interests, since it limits territory and encourages infighting.

Will they stand by you? Since you’re entering unknown territory, you will rely on the franchisor’s support to see you through the initial period. Check out what the training and support calendar looks like. Is there a marketing plan laid out which can help you break into the market?

Some indicators would be the number of days per month that the franchisor’s staff will spend at your location and the number of people assigned to take care of your requirements. If the franchisor is short staffed, you may find that they will not be able to support you adequately in times of crisis.

What is their reputation like? Every franchisor will sell you success stories of other franchisees in a bid to sign you up. Don’t let it rest at that – find out how the parent company is faring as well, as their financial health is very crucial to the stability of the business. Don’t assume that there’s always a sound company behind a strong brand.

A fast growing franchisor may brag about how they’ve grown in recent years. Treat that as a warning signal – usually, a spate of new franchisee signups is accompanied by an equally large number of break-ups. Make sure you are not signing up with the hire and fire variety.

Be sure to speak with at least a couple of existing franchisees to get their perspective on the parent company. If they seem satisfied, the opportunity is probably worth considering.

Are the terms fair? The franchisor will have a standard agreement that both parties need to sign. Since this is the guiding document for all franchisees, you can expect that it will not be changed to suit your preferences.

Make sure that you understand the clauses fully, especially those that deal with territorial rights, financial outlay, terms of separation and dispute resolution. While you can expect that the terms will be loaded in favour of the franchisor, don’t sign something that is blatantly unfair to the franchisee.

Quite often, the reason for buying a franchise is so that the existing infrastructure can be put to better use. But it is equally important that you don’t sign up the wrong opportunity, just so you can keep the staff busy.

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