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Looking to Buy a Franchise? Ask These Questions First.

 

Even though buying a franchise provides you with a proven operating system, you still have to do all the hard work of opening the business and securing the financing. It still falls on your shoulders to ensure that all the equipment is running properly, the staff is trained and working all the shifts needed, and that you have enough money left over to pay everyone.

This can get overwhelming when starting any business, but especially a franchise because there are are rules you may not have been aware of, questions you didn’t ask, or variables not taken into account.

When you buy into a franchise you should be getting much more than a brand and a menu. Before you get involved with any franchise, ask yourself and the franchisor the below questions to find out if it’s the right fit for you and your money.

Profits over sales, every time

Sales are important, but profits are where you make your living. It’s great if your sales are over $1-2M a year, but if your profits are merely 7%, isn’t it better to be in a franchise doing $750K a year with 20% profits? Often times, prospective franchisees are focused on sales above all else, and don’t look at the big picture of what comes with high revenue stores.

Everything increases as revenue goes up. For example, the more you use your equipment, the more it breaks down. The more staff you need, the more chance for accidents or incidents that can affect your workers comp and liability insurance. Finding the right combination of revenue, profits, and operations will allow for a growth pattern that can be sustained and efficiently maximized.

Franchises love touting figures showing increases over last year’s sales and projections of continued growth — and leave out price increases and decreased profits during those time frames. They want to bring on as many franchisees as they can because it’s good for their brand and makes more money. As one might expect, not all franchises are created equally and it’s up to you the future franchisee to ask the right questions before getting involved.

What are the discount rates? Does the franchise drive sales with coupons?

What is the franchise’s sales model? Are they driving sales with coupons/discounts or do they have strong brand recognition and a consistent product? A competitive model based in discounts can increase overall sales, which is great for the brand, but at the cost of the franchisee and their profits. If the brand has a strong plan based in high margin items being paired with discounted items to balance GDP you can survive, but discounts merely for driving sales are a short-sighted plan ending with diminished returns.

Does the franchise have price protection through vendors?

When you sign on with the franchise, do they use their buying power to control costs for your restaurant? Knowing where they stand, and how competitive they are at driving profits for their franchisees (versus merely marketing and driving sales) shows what you are getting into. Some brands are better at this than others, with franchises having buying power to lower costs, while others work to secure contract pricing to protect their brand for years to come.

It’s up to you as a potential business owner to find a brand that uses your royalty fees to better your business long term. Just a menu and brand aren’t enough to stay competitive in today’s market; it takes a supportive brand and hardworking franchisee working together to strengthen a market.

What is the big picture?

The ideal franchise business combines a proven system with brand protection and recognition. What good is having a brand if the corporate ownership isn’t working to protect it long term? If you are not sure where to start, what brand is right for you, or even if the idea of franchising is the right solution, reach out to Blue Rock to review your holdings, goals, and find the right fit for your future. Taking the time to ask the right questions is key to growing your future.

At the end of the day, the goal is to find a brand that is willing to work as hard for you as you are, and will hold you and others to a higher standard to protect the brand and your profits. If you wanted to do it your own way with little to no help, you shouldn’t get into franchising to begin with.

Related: Grow Your Business Through Franchising (Free Download)