BigBear Design

How would you know if a certain franchise offering is right for you? Last year I’ve acquired a promising beverage franchise. One year later, it’s closed and we’re enjoying all its equipment at home. What went wrong? A lot of things, but mostly I didn’t ask the right questions to the right people in the beginning.

I’ve read business and legal magazines, websites, and books, and asked for advice from other businessmen, but as always there are a lot of things you learn along the way only after you’ve taken the plunge. These are the things I missed before, and kept biting me in the ass throughout the entire time of operation. If you’re considering getting a franchise, hopefully this will help you out.

1. What Their Business Is About. If you want a franchise that sells waffles, then the franchisor should be selling waffles. If their claim to fame or come-on is “we’ve sold over 100 franchise outlets”, or they’re giving you sales-talk instead of facts, then their business is probably selling franchises and that’s not good. Chances are they can’t help you after the deal is done since they haven’t done any of the actual operations. Eventually, no one will want to buy and the company will collapse, leaving you with a dead brand. My franchisor kept getting new franchisees at blinding speed, putting up stalls everywhere in the region and limiting us existing franchisees of places we can transfer to. And yet 99% of my friends and relatives has never bought a cup of coffee from, let alone heard of, the company. The few who did buy hated it, and won’t buy again (an issue of quality control, a problem we won’t discuss today).
2. What Other Franchisees Are Saying. Ask around to counter-check whatever details the franchisor gives you. More than once has my franchisor claimed certain branches have been generating a lot of income, as it turns out it was all hype.
3. Total Inital Investment. While most franchisors are responsible enough to quote the total initial investment required which includes everything, we were caught unaware when our franchisor billed a hefty sum for the starting inventory! Then they started quoting how much we need to spend for other equipment, cabinets, countertops, and other food items we should sell.
4. Recurring Costs. One huge benefit you’ll be getting from a franchise is that the franchisor buys consumables in large volumes from their suppliers. You can then buy the consumables at significantly lower prices than buying them straight from the supplier or manufacturer. In my experience however, the franchisor’s prices were 50%-100% more than the suppliers’ prices (which anyone could’ve easily called and ordered from directly)! Remember you’re required to purchase supplies only from your franchisor. Also find out who will be shouldering the repair costs of the substandard equipment they will be providing.
5. Do I Really Need Them. It sounds a bit arrogant, but it’s true. If what they have and are doing are truly special, then I’d bite. But if I could visit a couple of expos and trade shows to find all their suppliers (as well as cheaper, higher quality suppiles and equipment), is it worth to pay a few hundred thousand for a brand no one likes?

Don’t forget issues like track record and other topics that have already been discussed in several articles from business magazines and websites.