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Jul, 01 2008

Ready for profitable partnership?

In his book, `Profitable Partnerships`, the author explains to franchisees and franchisors how to create prosperous and successful business relationships. Here is an excerpt from the book

We all have expectations and assumptions of situations depending on our perspective and according to the information we have available at the time. Our perspective in turn influences our behaviour.

In other words, “When perception meets reality, reality comes out second best.”

The problem of differing perceptions and expectations can largely be prevented in the early stages of a franchise relationship if everyone keeps discussions very specific and writes things down. This enables both parties to review information together and minimises the chances of misunderstandings.

However, despite good intentions on the part of both sides, there is typically a lot happening and a lot of information to absorb at this time. It is thus advisable to never assume anything. As the saying goes – to assume makes an ASS out of U and ME.

If you are looking to purchase a franchise you need to consider whether you will really be happy in this type of business. Here are some tips and questions to consider that address the common areas where people can get themselves into trouble by assuming too much.

Tips

  • Be sure to complete thorough profitability and cash flow projections on the business. Have these checked by someone with good business skills and ensure they are based on sound assumptions. Although you may wish the franchisor to review these with you, understand that they are legally not allowed to make representations on sales or profits. The franchisor may however be prepared to provide you with some objective financial models they have developed from existing franchises.
  • Be clear on how much money you wish to draw from the business to support your lifestyle. Check with the franchisor whether they believe this to be realistic.
  • Be sure you have enough working capital to support you and the business should sales be slower than projected.
  • Read as much relevant material on franchising and buy a copy of a relevant Franchisee Guide that contains useful checklists.
  • Interview as many franchises as possible about their experience and ask specific questions about the day to day obligations and commitments involved in running a business of this type.

Questions

  • Are you clear on why you want to go into this business?
  • You need to consider whether the business will satisfy your motivational needs. Just looking to buy a job is not a strong enough reason to buy a franchise. If you are very ambitious there may be limits on what you can achieve with the one franchise.
  • Would you be happy to work in this business for long periods at a time without a break?
  • You may need to work 6 or 7 days a week or for long hours. When things go wrong in the business you can`t assume that your franchisor will sort it out for you.
  • Are you proud to tell people that you will be running this business?
  • Consider how you will feel when people ask you what you do for a living. Being a franchisee with this brand will become a large part of your identity.
  • How does your family feel about you going into this business?
  • If your family expects you to put time and energy into other priorities, tension will be inevitable.
  • What is your gut feel about the people who own or run the franchisor company?
  • You are signing an agreement to work with these people for 5 or 10 years. If you are not comfortable with the culture or the way things are done conflict is inevitable.
  • Are you comfortable selling to customers and networking with new people to promote your business?
  • Nothing happens until somebody sells something. If you are not prepared to go out and sell your products or services it is unlikely that you can lead others to do so.
  • Are you happy to participate in forums and group activities, which could involve travel away from home?
  • You will be expected to participate in ongoing training, conferences and seminars.
  • Are you happy to invest the money and time to continually learn new knowledge and skills?
  • If you don`t keep developing professionally, you and your business will get stale.
  • When you disagree with someone about something you feel strongly about, can you talk it through without exploding or giving up?
  • Some differences of opinion will be inevitable. If you are used to getting your way by sulking or becoming aggressive or vindictive you will end up with serious problems with your franchisor.
  • Can you cope with stressful events and financial pressure?
  • Things are bound to happen which are unexpected and beyond your control. Some of these may place you or the business under significant strain.
  • Can you supervise and motivate other people?
  • If your business involves staff they must be managed and motivated. You will never succeed without high performing staff.
  • Are you happy sharing your business information with other people?
  • Most franchisors require full disclosure of financial and business information on a weekly or monthly basis. Other franchisees will also want to talk with you and share information.
  • How much money will satisfy your minimal lifestyle needs and how much do you hope to make?

You need to decide whether this business will realistically be able to deliver this income and whether the return is worth the investment. It is helpful to define how much money you need to meet your commitments as distinct from how much money you ideally want. You also need to consider the difference between cash flow, profit and capital gain and be clear on what is most important to you.

Are you happy to forgo your own way of doing things and follow someone else`s systems?

If you have a strong entrepreneurial or creative streak this could be a problem.

If things don`t work out, are you prepared to take full responsibility for your decision to buy this business?

All business involves some risk. The statistical facts are that some businesses are going to fail, even in the best franchise systems, despite the best efforts of everyone.

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