Can You Afford A Franchise?
Buying into a franchise is a big step in your life. It may be one of the most significant financial decisions you will make. while the bank may say ‘yes’ to the monetary cost of the business, it’s vital to look beneath the surface at the hidden costs. These can have a considerable impact on whether your venture sinks or swims.
Have you ever looked out at the ocean when it’s calm? The sun is shining, there’s a pleasant breeze, and the waves are gently lapping at the sand. It looks ideal, right? But how do you know that the water is as calm as it appears? Are there undercurrents or rips that can cause problems for even the strongest swimmer?
Buying a business can appear the same. Everything can appear to be in excellent shape – the financials, the business plan, the product, the reputation of the franchisor, the customer demand – but, before you dive in, it’s important to consider some of the costs that lie beneath the surface.
Putting a value on your own time
It can be tempting, and even exciting, to think about all that you will be able to do in a business. You may be a people person and the idea of engaging with customers every day is something that is highly motivating to run a café or a gym or play centre. However, it’s essential to assess how much time you will be able to spend on the day-to-day running of the business (serving customers, cleaning, ordering stock, to name a few) compared to a strategy level (reassessing your business plan, professional development of your team, assessing any risks due to changing customer demand or evolving economical situations).
You need to be realistic and not sell yourself short, or to put it in another way, don’t underpay yourself. You wouldn’t underpay your employees, so why are you diminishing the value placed on your own time?
Carefully examine how many hours a day you can put into a business and how you want to use them. Is it reasonable to spend all day servicing cars, or making coffee or taking classes, and then cramming all the paperwork, forecasting and business development into the evenings and weekends? Is that a wise investment of your own time, and importantly, impacting your health and well-being?
Running a business is not a part-time job, there will be extended hours involved, but it’s also important not to run yourself into the ground. Assess the time you will need to invest of your own or how much you can afford to delegate to a manager or additional staff before you sign on the dotted line. You need to walk into the business with a clear idea of how you will allocate your working hours, and non-working hours, within that business.
The skills gap
Most franchisees come to their new business with a skill set developed over the years in other roles. You may be a fitness instructor purchasing a Pilates and yoga studio – running classes will be simple for you, but managing a team of employees may be something you have not done before.
You will need to know what training, coaching and professional development are offered to franchisees in areas such as management by the franchisor. Training will vary significantly depending on the franchise model you buy into, as will on-the-ground support via a field coach. Some businesses offer extensive leadership training, while others focus more firmly on the skills you need to run the business day-to-day such as running classes, serving customers or producing food and beverages.
Investigate the training and professional development offered and note any areas where you feel you may still have gaps in your skills and knowledge. External courses or business coaching is available, but this may require additional time and financial output for which you may need to budget.
Getting the word out
Most franchise businesses have a national marketing strategy and branding concepts that filter through all their advertisements, signage, website and promotional materials. Where marketing at a head office level starts and ends will vary based on the franchise you are looking to buy into, and it is a question you should be asking. What marketing initiatives run out of head office? You may be expected to contribute to a marketing pool to fund advertisements, sponsorships or a social media campaign, and this may lift some of the marketing burden off your shoulders.
However, very rarely are franchisees not expected to undertake at least some of their own marketing at a local level – perhaps running a venue-specific Instagram or Facebook account, sponsoring a sporting club or community or even letterboxing flyers. It’s important to consider how equipped you are to handle this and determine whether local area marketing is something you can do yourself, or whether you may need to supplement a broader level campaign with your own time or cost of hiring a casual social media or public relations support.
Get the inside word from those in the know
The best way to assess what hidden costs may exist is to talk to other franchisees. Ask them what costs they encountered that they didn’t expect. What questions would they ask if they had their time again? What parts of the business they spent too much time on or not enough? Are there areas they would have outsourced or delegated earlier on to allow them to focus on other parts of the business?
Current or former franchisees are a wealth of information – make sure you utilise their experience to help make your venture more enjoyable, profitable and successful.
What are the short term savings vs long term costs?
Who doesn’t love a bargain? There is no doubt that if you feel you can get the same outcome at a lower price, it is incredibly tempting to go for the more affordable option. But sometimes, the less expensive franchise may end up costing you more if you need to supplement areas like marketing, training or professional services heavily from your pocket. Consider the costs and what savings you may be making in the long run by purchasing a franchise that offers more support, compared to one that may offer fewer support services.
It’s also worth considering the return on investment. A smaller investment may be financially appealing, but it may not deliver the sort of profits you are seeking. It may
be ideal for a side-hustle or lifestyle change, complemented with other household income, but if you want a franchise to be a full-time household income, you need to examine the rate invested compared to the expected return carefully.
Going into a franchise understanding that there may be more beneath the price tag is one of the first steps of setting yourself up for a successful business opportunity.
FC Business Solutions is an integrated consultancy focused exclusively on the franchise community. Our team of professionals has been providing specialised and expert services to franchises for many years.
The FC Business Solutions team are actively involved members of the Franchise Council of Australia regularly attending events, participating in committees and assisting in raising the profile of franchising in Australia.
FC Business Solutions is a business which has proudly been certified in accordance with the internationally recognised ISO 9001: 2008 management system which focuses our business on delivering a consistent level of quality to our clients defined by regularly reviewed processes and procedures.
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