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Feb, 01 2005

Self assessment and the right franchise

The primary step towards starting a business, specially a franchised one, is to assess yourself whether you are fit to do business or not. This is necessary because self-motivation and enthusiasm are the major reasons that lead to a successful business.

IF you are, like many of your peers, reading this magazine, you may be contemplating on quitting your dead- end job, and getting into a business that provides you with a nice income, freedom of time, and unlimited earning opportunity.
Or, maybe you are sitting on a prime property and you feel that now is the right time to maximise the returns on the property by owning a good franchise business that can pay you handsome dividends, PLUS, give you a nice little business on the side.

Sounds great, doesn’t it?

So, you go to the market and begin looking at a whole range of different business opportunities that you think could interest you. But, you face a problem. There are just too many from which to choose. Besides, how would you know which one is good and which one is bad? How do you sort the wheat from the chaff?

Let me start by saying that if you have chosen a franchise model then you are on the right path. The foundation principle behind a franchise is that the franchisor has operated the business successfully for some time, and has developed a sophisticated system so that they can now reproduce that winning formula by training other people (the franchisee) in his winning business formula.

Statistics support this statement. The US Department of Commerce some time back, did a survey on the survival rate of franchised and start-from-scratch businesses. The average start-from-scratch business had an attrition rate of 82 per cent in the first 10 years. Out of 100 persons who started a business 10 years ago, only 18 remained. That is, 82 persons, just like you, who started with a vision and a dream of a better life, found their dreams and money go down the drain. Compare this to franchising where the attrition rate is only 10 per cent. That means 90 per cent of the franchisees are still in business 10 years further on. Why, you ask? Because what you buy in a franchise model is a proven business formula that actually works. The key word here is proven. When you buy a franchised business you reduce the risk because the business is already a proven winner.

So, if you agree with me that franchising is a much safer business investment, then, how do you decipher which one is the best for you, and, once you have found that “right” business, how do you intelligently go about assessing the commercial viability of the venture. In other words, how is it possible to research a business in such a thorough manner that you buy the franchise with your eyes wide open, rather than going in on a whim and a prayer.

Well, read on, as I am about to share with you some hard questions that you, first of all, need to ask yourself, and then, some equally hard questions that you should ask your prospective franchisor.

Is this franchise right for me?

Surprisingly, many people don’t ask themselves the following question: Is this business that I am getting into is something that is going to make me want to get up on Monday mornings with a spring in my steps, as I make my way to open up the business, or conversely, will I be wanting to pull the sheets up over my head and wish this business would just go away?

The first thing you need to ask yourself is, “Is this business a good fit for my personality, temperament and position in life?” Let’s think about this for a while. If you are an extreme introvert and would prefer to be in a back room working on your own, how are you going to feel dealing with customers and staff all day? I’ll tell you how you will feel: You will feel like pulling up the covers on Monday mornings! Or, what if you just love having a chat, and get energized by being around people, and you take a job where you work on your own all day with detailed figures, once again, where are those sheets to pull up over my head!!

The second question you need to ask yourself is, “What kind of lifestyle do I want to live?” If you love being with your family and friends and find that you are now locked into a business where you work 12 hours a day, 7 days a week, is that going to be good for you and your family?

The third question is, “Do I really believe in this business and its products and services?” One thing I have noticed in successful business people is that they are enthusiastic and passionate about their business. For them, it is not work, but an everyday joy because they are doing something they believe in. So, don’t get into a business just because of the RoI. Get into a business because you love it, and believe in the products and services you are offering. Believe me, it will rub off on your customers and you won’t be able to wait to get to work on Monday mornings. If you get this right, you will have bought yourself a business rather than having bought yourself a job.

The fourth question is, “Do my skills fit this business?” To be honest, there is no point purchasing a pre-school franchise if you hate kids and don’t have the patience or skills to teach or lead a team that will teach your key customers, i.e, the kids. Develop a personality profile of yourself. Take some time and write a list of your positive and negative characteristics. Are your strengths something that will excel in this business, or will it expose your weaknesses more?

The fifth question is, “Ask those people who love you and know you well whether they think you will be a success at this business.” Be game enough to ask them for an honest and frank response. Sometimes those closest to us see blind spots we do not see ourselves.

If you have been honest with yourself while answering these questions and you feel the business is a good fit for you, then how do you pick the right franchise business from the masses that are out there supposedly offering the same business opportunity.

Well, I am going to give you a plan on how to go about asking intelligent questions that will go to the very heart of the opportunity.

Asking the hard questions

Once you have short-listed some franchise opportunities that are a good fit to your personality and skill set, then, I suggest, you go about your research and give due diligence in the following manner:

Make contact with the franchisor and ask him to mail you all the relevant information on his franchise opportunity. Most franchisors will have a glossy brochure that will outline their business and franchise opportunity. The more professional franchisors will have a Franchise Kit specifically targeted at the business opportunity that will answer most questions that a franchisee would have, including the business products, financial projections, RoI, franchisee fees, etc.

Once you get the information, read the information carefully and highlight certain questions you may have in their material. Remember, if you go through with this business, you will be joined at the hip with this company for some time, so, do your research well.

Highlight any questions you may have that you may want to ask your solicitor or accountant.

Grab a piece of paper and draw a line down the middle, and on one side write “questions for franchisor” and on the other write “questions for franchisee”. As you go through the material jot down these questions.

One of the first things you will need to do is to ask the franchisor for contact names of their existing franchisees. You will want to speak to them. Remember, these are the persons who were in the same shoes as you are in now. Here are some questions you need to ask existing franchisees over the phone:

How long have you been in business?

What sort of support do you get from the franchisor?

Did you initially get adequate training, good systems and clear manuals?

Did the franchisor help you when you needed support because of unexpected hardship such as a death in the family?
If it took you longer to adjust than expected, did the franchisor help?

If you didn’t like the business at first, what did the franchisor do? Did he try to help?

Is the franchisor keeping his end of the bargain meeting all your expectations?

How long did it take you to recoup your investment?

Is your franchise profitable now? Are profits what you expected?

Is the franchisor alert to changes in the marketplace and quick to change with them?

What do you like the most about the franchisor?

What do you like the least about the franchisor?

Keep a list of the responses and call several franchisees. Don’t just rely on one or two franchisees. You will inevitably see some patterns emerging for good or for bad!

Contact the franchisor and ask them to comment on some of the responses you received from franchisees. Then ask the franchisor some hard-hitting questions as well, like the following:

When did you award your first franchise? Is it still in business?

How many franchises have failed? Where and when?

How many franchises do you plan to open over the next 12 months?

Are any of your company operations in the same type of business and in competition with your franchisees?

Is the franchise territory exclusive or non exclusive?

Do you provide aid in financing or guarantees?

Do you provide site selection assistance?

In the event of termination, what rights do I have? What are my renewal rights?

What are the restrictions on resale?

Is there a policy of mandatory re-investment, i.e. a percentage of profits that must be reinvested for future growth?

Does the franchisor have the right of first refusal?

Does the company have to approve the person I sell to?

Believe me, if the franchisor is a reputable company they will respect you for doing your research and asking intelligent questions. It all goes to prove that you know what you are doing.

If feasible, go and visit franchisees in person and look at the business first hand. They will tell you more while meeting face-to-face

Once you have all the data, seek out professional advice that can guide you in your decisions. It is advisable to speak to specialists rather than GPs who are masters of everything and specialists in none. Listen to their advice. This business decision is about using both your gut instincts and your head logic.

Check with your bankers and involve them in the process.

Arrange a meeting at the franchisor’s head office and meet face-to-face with the people you will be dealing with on a daily basis. Ask yourself the question, “Can I see myself working with these people for the next 10 years?”

After you have all this information, you will, then, be in a position to ask yourself that all important question, “IS THIS BUSINESS FOR ME?”

If the answer is no, then repeat the process with another company until all the green lights line up. If it is yes, then get into your business and give it everything you’ve got.

All the best my friend, and I hope to see you one day being awarded as the Franchisee of the Year.

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