I want to buy a franchise. Is this a good idea?
Maybe…Firstly, to get a successful franchise is very difficult. Think about it. Who wants to sell a gold mine!
Occasionally, a new store opens up with a major franchise but these are usually worked out ten years in advance. Good luck getting one cause you’d have to be connected or in the know. They’re usually offered to experienced or existing franchisees.
So, that leaves you with the ordinaries, also rans and dead dogs. This is where most people end up. Some do ok. Some lose their life’s savings. The question you have to ask is this. Are you happy just buying a job? The average franchisee just makes a living. There are a few at the top of the tree who do very well and others who lose.
In essence with a franchise you are buying systems and marketing which is a huge advantage. Hopefully, you have experience and come from the industry you wish to buy into. If you don’t you could be in trouble because you don’t know anything and you wont know your numbers or industry peculiarities. At least if you’ve worked in the industry, you’ll have an idea or you will at least have contacts who can assist you.
Apart from the initial costs and ongoing franchise fees you will be at the mercy of center management and their ruthless fees and contracts that will make your life a misery. Ever wondered why shops disappear?
The parent franchise company always makes money. You may not. Patience and due diligence is the key. There are a lot of dodgy practices in the industry, so beware. Why is the franchise for sale? What are the rules? If it’s a new release can it make money? A few quick visits before even making contact, would give you an indication of potential customers and traffic.
I looked at a well known franchise once and I knew the guy who owned a very lucrative one. I went to the center where this new shop was opening and there is no way in the world it could make money! It had a quarter of the traffic of the successful store and even worse, it was in a terrible location, tucked away in the corner, destined for failure.
Patience and research is the key. Use the three Ds to your advantage: Death, Debt, Divorce. That means you have to be patient and look for a deal not for a franchise.
- When someone dies, the heirs probably wont work in the business and will sell the business cheap.
- When someone is in debt, they will sell a business cheap.
- When someone divorces, the couple usually have to sell a business cheap.
IMPORTANT: even if the trends in the industry are in your favor, you CANNOT predict the future. But you can use the past to help you get a deal. Look at COVID and how that affected businesses. Always get a deal.