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Mar, 01 2007

Examine Your Franchisor’s System

MANY people dream of being an entrepreneur. By purchasing a franchise, you often can sell goods and services that have instant name recognition and can obtain training and ongoing support to help you succeed. But be cautious.

MANY people dream of being an entrepreneur. By purchasing a franchise, you often can sell goods and services that have instant name recognition and can obtain training and ongoing support to help you succeed. But be cautious. Like any investment, purchasing a franchise is not a guarantee of success, it can be a risk. When selecting a franchise, carefully consider a number of factors, such as the demand for the products or services, likely competition, the franchisor's background, and the level of support you will receive. Also carefully consider how much money you have to invest, your abilities, and your goals.

You may be tempted into buying a franchise without conducting a thorough assessment of the business. If you are looking at setting up your own business, franchising could provide an attractive alternative to start from scratch. Investing in a franchise makes good business sense, as it is based on a proven business concept. But be warned, not all businesses professing to operate franchise systems offer the support, back-up and training that go hand-in-hand with franchising. To minimize the risk, you must ensure that the business you are buying is a true franchise.

A good franchisor will not expect you to take all the risk they will open the first units themselves as corporate units, study and perfect their systems and marketing, and then, when everything is working well, invite franchisees to join them in their growth. You should look for that in a system that you are considering joining.

Over the years, many people have said they would have liked to become part of McDonald's when it was first starting. They felt that they would probably be multi-millionaires today if they had. That could very well be true. McDonald's has proven enormously successful to many people.

5 Elements to examine

So the big question for you when you select a franchise is: "when is a franchise system large enough and strong enough for you to be comfortable about investing in it and also still be growing enough for you to achieve your long term goals?"

If you are thinking of investing in a franchise company, you should be certain to look for at least the five following key elements that each franchisor should offer to its franchisees. If your franchisor can say "yes" to all five of these necessary elements, you may be on to something:

Good concept: When a franchisor begins his business, he needs to enter the fray by identifying a market niche that can be exploited some segment of the marketplace that is not being served sufficiently well. The unique way in which this new company handles its niche can be a deciding factor in its success. Simply put, it has to 'build a better mousetrap'. There has to be a reason why people will choose to patronise the system, so make sure that any system you consider becoming a part of, has this 'better mousetrap' as part of its concept.

Good systems: When you purchase a franchise, you should be buying systems that 'work'. They should be written down in manuals and taught to you in detail during training so that your business takes off quickly without making costly errors. The manuals should include all facets of the business from accounting through sales, plus the human resources information you need, to help you hire and train your own employees. You shouldn't have to guess you should be able to look up every answer in the operations manuals. In today's 'cyber age', you should also look to see whether your franchisor is using up-to-date technology. We all know about the Internet, and your franchisor should almost certainly have a strong website.

Successful prototypes: Perhaps the greatest joy associated with a franchise is that you are using a 'proven' system. Before you become part of any system or join a new franchise system, you should be sure that others have already demonstrated that it works. If the franchisor has not opened and successfully run at least one prototype (and preferably several prototypes) there is simply no way that you can be certain that the system is proven and that it works.

Money: Perhaps the number one reason that businesses fail is that they run out of money before they can establish themselves in the marketplace. Your franchisor must be able to tell you (within a range) how much you will need for the equipment, construction, and other hard costs. He should also be able to tell you how much money you will need for working capital until you break even.

Dedicated management team: Time and again, franchises fail in their first five years of business. Often it is because there weren't enough good management people in the company to keep the system going and growing.

The final question

The final question you must ask yourself is: Will I be safe? Even in the largest and most proven franchise system there will always be some risk. So, study the market, study the franchise, and study the competition. If, after you truly understand the business, you feel that the franchisor complies with all of the above elements and truly does offer a unique and valuable product, then go for it! You may be on to something great.

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