If you’re thinking about whether to start your own business from scratch or to purchase a successful franchise, there are pros and cons to both.
One of the first things to weigh up is the start-up cost. Most businesses take between one and five years to break even and reach profitability. Often, the reason for new ventures flopping is a lack of capital and insufficient funds to spend on marketing and advertising.
As an alternative, franchising can be an excellent option as it offers a business structure or model that is already successful, established, and recognised, meaning franchise owners need to spend less on creating a customer base and increasing brand recognition. Of course, not all franchises are created equal, and you need to do your homework before investing.
The key is to shop for verifiable value, and understanding the difference between value and price is essential. As Warren Buffett says: “it is far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” This applies to franchising too.
To find the right franchise you need to look for a quality franchise that is also a good match for your personality, goals, dreams, and vision. A franchise is an investment with both financial and personal implications, so it is very important that your decision is based on both short and long-term objectives.
• Make a list. Decide what franchise model will work best for you, and discard anything that doesn’t fit into it.
• Do due diligence. Before even considering where to invest your money, learn what to look for and then seek it out. Weed out the mediocre businesses from those with outstanding potential. This includes the number of customer leads, lead conversion statistics, overall customer base size, and profit per sale.
• Be a customer. Walk into a franchise and buy something to see how they treat customers and what the quality of the products, services, and presentation is like.
• Check the brand synergy. Becoming a franchise owner means becoming a representative of what the franchise stands for and does, so there needs to be 100% synergy with the brand.
• Talk to other franchise owners. Find out about how the business works for them.
• Put together a business plan. Articulating your vision on paper helps to identify strengths and weaknesses, communicate different concepts and ideas, and solidify goals, criteria, and specific requirements.
*Harry Welby-Cooke is the Co-Master Franchisor for ActionCOACH in Southern Africa.