5 mistakes to avoid when looking for a new franchise

Tim West | Managing Director and Founder | 12 Round Fitness (12RND)

Franchising buying tips and mistakes

In today’s market if you’re tossing up between starting your own independent business or opting for a franchise then it’s vitally important that you research all your options. Given that people establishing their own businesses must deal with a vast amount of operational, technological and regulatory challenges, franchising is an attractive alternative.

Research shows that franchises are more likely to succeed than independent small businesses.

The Griffith University Franchising in Australia report (2012) showed that, post GFC, the franchising sector shifted into economic recovery sooner than the general small business sector with the sales turnover for the entire Australian franchising sector estimated at that time at $131 billion.

However, there are always risks. You need to assess the risk effectively based on your personal position (competency and capital) then weigh that up against the capital required and the potential return. This should form the basis of your decision on whether to invest or not.

In order to make the best decision possible when choosing to dive into a franchise, here are five mistakes to avoid.

1. Failing to trial a product yourself

Would you believe that some franchisees attempt to get into a new business without actually experiencing the product or service themselves? This is a big mistake! Whether it’s a gym, personal services company or beautician – whatever the business is - you need to experience first-hand what the customer experiences.

In my fitness franchise 12 Round Fitness (12RND), we offer customers a purpose-built boxing and functional strength training facility, designed to deliver workouts created around the format of a 12-round boxing contest. It’s a unique concept in the Australian fitness industry, so I always urge interested franchisees to come and do a circuit at one of the gyms first. Once they experience it themselves, it’s much easier for them to envisage it as a viable business.

2. Believing the hype and nixing the research

Don’t be solely swayed by media hype on a particular trend. Always do your own due diligence and thoroughly investigate a new industry yourself before committing to anything. Try to get an overall picture and uncover how much consumers spend on a particular industry and its rate of growth.

For example, Australians spend $8.5 billion on health and fitness per year. The industry is growing at a rate of 3.1 per cent annually. These figures are in line with comparable economies around the globe and show it’s one of the fastest growing and most stable industries in the world. So in my opinion, franchising in this industry is a solid option.

When developing each of my fitness businesses, I read everything I could about the subject. I studied reports, subscribed to blogs, bought magazines, looked online, identified industry leaders, and followed experts on Instagram, Twitter and Facebook. I went into my ventures fully prepared.

If you still need clarification, then set up some meetings with leaders in the field and pick their brains. Many people will be only too happy to help you out if you have a genuine interest in the industry.

3. Not quizzing and investigating a franchisor enough

It’s vitally important to ask a franchisor the right questions. If a franchisor is not forthcoming with information, seems vague, disinterested or overly pushy then be wary. If you are going to invest a chunk of your money then you need to be comfortable with who you’re dealing with! You need to ask them for all the vital details relating to finances, marketing etc, and expect them to be open and honest. Both franchisee and franchisor must have a relationship based on trust and aligned outcomes.

Importantly, do a research check on the business and the person you’re dealing with. Get to grips with the history and culture of the business. Also do market research on the long-term potential of the service or product. Remember a business based on a short-term trend isn’t sustainable for the long haul. Then assess if your core values align. If one of you is ‘only in it for the money’ then you could have issues down the track. Speak to the franchisor’s employees and contacts if possible to get an outside perspective on them.

4. Forgetting that you need to pay yourself

Unless you are going to run the business from day one as an ‘absentee owner’ you will need to include your wage (however modest) as an expense in the financial forecasts to give you the full picture. Too often franchisees fail to do this and put themselves under great financial stress. If the business can’t afford to pay you for your time, as it would for any other staff member, then it may not be a viable option for you.

Understand that when you’re investing in a franchise it’s not a one-time deal. Aside from your own wage there will be ongoing costs needed to support the venture. In the franchise disclosure document there will be an estimate of the amount of investment you’re required to make. Take a good look at this, do your sums and then have more set aside as contingency.

5. Getting into something without the relevant skills

Honestly assessing your skill set is an important step. If you have skills and knowledge that are relevant to key roles within the business then it decreases your risk as you can step in when and if required. Exaggerating your ability to add value and walking into something unprepared is naive and also makes you reliant on staff who may know more than you.

In my own experience, as I’m a qualified personal trainer I have a thorough knowledge of the fitness industry, and have previously run several successful fitness related businesses. This is why I classify my latest venture as franchisor of 12RND to be at a lower risk than previous investments in technology.

However, even if you don’t have specific experience in an industry, it is still more than possible to successfully take on a venture. You just need to do your research beforehand and ask the right questions.

Tim West is the innovative Managing Director and Founder of 12 Round Fitness (12RND) which aims to provide the most convenient, results-driven product in the world. Each 12RND club is a purpose-built boxing and functional strength training facility, designed to deliver workouts created around the format of a 12-round boxing contest.

Tim has been at the helm of several successful fitness and technology ventures throughout the last 18 years.

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