Don’t ignore the warning signs. Franchisees are indeed some of the most valuable resources of information when you are considering a franchise for purchase.
Learning From Franchisee Mistakes
By: Sheba Pottebaum
Franchisees are indeed some of the most valuable resources of information when you are considering a franchise for purchase. Moreover, some of the best information you can discover as a potential franchisee might be to ask past/current franchisees just what they would do differently if they were able to purchase their individual franchise investment over again. Following are some of the most common areas of franchisee complaints and regular objections.
Marketing – Most franchisors have already addressed marketing as a significant part of their respective “system.” New franchisees are typically inundated with advertisers from every direction at first. Simply, unless you have what you think is a particular untapped source of new business, stick to the marketing plan supplied by the franchisor. Marketing budgets can easily and quickly get out of hand.
Equipment – Equipment costs, particularly concerning more “general” items (appliances etc.), are often a source of complaint among franchisees. Ask the franchisor where they found and how they found the prices for their equipment. Suggest different sources or resources if you find large discrepancies in vendor pricing.
Leases – If you are considering a franchise with a “box” location (retail etc.) its good to ask about the lease terms and how they were negotiated. Franchisees can often get several free months of rent when negotiating longer terms – remember to ask if these months can take place upfront, freeing up capital as you are just getting established.
Build-Out – Be active/involved in the construction cost/estimation. Many times fixtures and materials are priced differently from one region of the country to another.
Labor – Labor costs are usually the area where new franchisees can make initial mistakes. Be diligent and remember not to hire too many employees at first, or promising too much pay initially. There is often a fine line between “making” or “breaking” one’s franchise when employment costs are not estimated correctly.
Inventory – Remember to ask existing and past franchisees how they were able to “tighten” their profit margins. A common area of suggestion is to analyze inventories and pricing. While not just important in the initial phases of the franchise rollout, constantly scrutinizing and adjusting inventories with demand is a way to help profits continually.
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