The other day while watching a popular telenovela I saw a string of commercials of various businesses. I must have lost count of the number. However what are common to most are two words “Now Franchising”.
Way back in the mid nineties, seldom would anyone hear those words spoken or advertised. There were just a handful and most were on the expensive side.
Today almost there are more and more businesses, which are using franchising as means of expansion. Approximately there are now 2000 plus from various kinds of food and retail services. It is nice to know the growth of this sector.
With many choices, I met several people who narrated the bitter lessons experienced in investing in a franchise business.
Let me share top 3 mistakes when investing in a franchise.
1. The investment is so cheap …… oftentimes people are lured into investing in the so-called cheap franchises. The temptation is more on the price with nice pictures. Given this assumption and the amount, one can easily fall prey. The problem is compounded by the sweet talk by the sales person. Investment covers the amount a person may need to set up including the payment for permits and other needed amount to start the business.
Thus the investment of the franchise may refer only the business per se but not on totality. The person must also verify and do a projected financial return. If the amount of the franchise is cheap, a question must be why so cheap? How competitive is this? Last but not least get hold of the list of franchisees and do check on their experiences. Chances there may be many undiscovered questions.
2. Great product But wrong location.. In any business the formula for success includes not just the product but also the location. I was approached by an OFW (Overseas Filipino Worker) happened to get a franchise of a well-known food brand. I personally knew and liked the products way back when I was in the Middle East. Unfortunately the person signed up for a newly built mall. His mistake was he failed to consider the target market of his franchise vis-à-vis the mall. On weekdays hardly were there people with the right purchasing power. It was only on weekends and holiday’s sales were much better. In most franchise businesses, the franchisor enjoins the franchise applicant to study and be convinced of the location’s potentials. Both parties conduct an independent study. This is highly advisable as both parties address issues and expectations. A study does not just cover a period of 1 to 2 days but at least a week or two. The franchisor has a template for the other party to follow.
3. The franchise has no support… By the definition of Franchising it means To Be In Business For Yourself But Not By Yourself. It follows there is somebody who will be there to provide support. A young couple invested on an incredible amount for a foreign franchise. There was a strong potential and the location was in the right spot in Global City. Indeed it is where their identified target customers go and frequent. The store began operations and had a soft opening. The customers begin to come in as the brand is also well known in other countries. However the couple began to expect support from the franchisor. This came in when they realized the kind of training necessary for the staff as well as in the kitchen preparations. There was only a foreign chef who was assigned to handle the food preparation. However as to the management and training of staff, nothing was given. The couple with no food background relied on the experiences of the hired staff. Unfortunately the staff came from all different types of companies and business concepts. The franchisor has yet to provide on loan a management manual. The couple tired and stressed demanded from the franchisor the much needed support.
The experience of the couple could have been prevented if in the beginning they sought the guidance of professionals. Assuming is always a dangerous step. Always ask what covers the support including frequency of visits. I recalled a popular resort and casino where top management fired the general manager of the group. The honcho was dissatisfied of the performance and remised of what was initially agreed upon.