5 Insider Secrets Every Franchisee Needs To Know Before They Buy a Franchise

You dream of being in your own business and you figure that buying a franchise might be the right choice. After all, the business model is proven right, and the franchisor is going to work closely with you to help you build your business right?

Sounds good, but is this how most franchise business opportunities play out?

Let me tell you that done well it can be the best decision of your life….. done poorly and you will regret the decision for the rest of your life.

I have seen amazing success stories and I’ve also had a front row seat in witnessing many lives, marriages and family nest eggs destroyed through (in many cases) no fault of the franchisee. They just didn’t know what to look for and were carried away with the attraction of being in business on their own

My name is Tony White and I’ve been on the ‘inside’ of franchise brands for the past 20 years. By the ‘inside’ I mean I have represented franchise brands to franchisees so I know a little bit about the spin that many franchisors pedal.

One franchise brand I led had over 800 stores across 42 countries and another 400 stores across 7 countries. I have also consulted to many franchisors across multiple countries.

As a result I have seen the best and the worst, so a word caution for you before you dive in boots and all – not all franchise opportunities are created equally.

From my experience, many franchise brands have one third that are doing exceptionally well (their hero franchisees), one third just surviving paying the franchisee a wage at best ( not thriving but not going backwards), and one third struggling and at risk of losing everything

It is common for most franchise brands to “accept” that 10% of their franchisees will never make it

So here is my question …….

Do you want to be in the 10% of bottom dwellers or in the one third doing exceptionally well?

Then here are 5 insider success secrets that can help you to find yourself in that top one third ….

1. Location is key – you can have a bad franchisee in a good location and still do ok, but you will rarely find a poor location survive even a good franchisee. So how do you know if a site is good or bad??
   1. Ask for the locations of the top 20% of turnover sites and bottom 20% turnover sites
   2. Assess what makes them work…. and what makes poor locations not work
   3. Ensure the site you get has the characteristics of the top 20% turnover sites

   Once you know the location is right, do you research to know the rent proposed can support the business model. I have seen great locations that do exceptionally good turnover, but the high rental for the prime location means that the franchisee is working for the landlord. Remember it’s about whats left in the bank after all costs, not just the big top line number

2. Experience what good looks like – spend time visiting the best performing locations ….. not as a potential franchisee but as a customer. See what you really like and what you don’t. Ensure you build this into your business when you start. The really good franchisees consistently do things right and care for the customer. What you want are customers coming back time and time again, so doing things right will ensure you build loyalty in your customers, and in the process, profits in your business
3. Talk to existing franchisees – select who you talk to and don’t rely on the franchisor to ‘recommend’ franchisees. From my own experience, a franchisor will ensure they curate this experience so that you come away with positive feedback. Instead, get the franchisors disclosure document and select which franchisees you will talk to. Hint ….. ask who are the top 20% and bottom 20% and get a sense of what is truth and what is fiction. Talk to as many as you can to get a sense of consistency in pro’s and con’s of the franchise opportunity. And remember, when talking to franchisees you will get the “no hype” version
4. Know your numbers – financial ignorance when it comes to any business will destine your business for failure. If you don’t have that expertise then find an adviser that does. When it comes to franchising you are replicating a proven model, so all franchisors will know what the cost to revenue ratio’s need to be for you to be successful. If you are in retail then get your head fully across
   1. Direct input costs – what is the cost of a unit as a % of selling one item?
   2. Wages – how much staff do you need based on various revenue bands and convert this to a %?
   3. Rents – what should my rent to revenue % be for me to be profitable?

   Every successful franchisee I have seen is across their numbers. Conversely nearly every poor franchisee does not have a clue when it comes to financially managing their business

5. Understand where the franchise brand is in the “business life cycle”. The most returns from franchising come from brands that are in growth mode. Beware brands that are in plateau mode, and steer clear of brands that are in decline mode:

The Business Life Cycle

Best time to buy a franchise is late “start” stage to late “growth” stage. Be cautious buying in the plateau stage and don’t buy in the decline stage unless you have business turnaround expertise and you see where you can enter and exit quickly

Many people work a lifetime to save up to buy a franchisee. What can take decades to amass, can take years and in some cases months to lose. Tread cautiously and ensure you get great advice on the front end of your investment.

I wish you well as you build your wealth through franchising