Top Five Mistakes Made by Franchise Buyers

For many individuals, purchasing a franchise is the fulfillment of an entrepreneurial dream. But just buying into a particular franchise model does not guarantee success. In fact, buying into the wrong brand can turn your business ownership dream into a nightmare. To ensure you are getting into the right franchise, there are certain critical mistakes you should avoid.

Here are five of the top franchise buying mistakes made by aspiring owners:

Buying the Name, and Not the Business Model

A lot of entrepreneurs become franchisees after first being consumers of a particular product or service. For example, they love the food at a particular fast food restaurant, and they think “hey, we could open one of these in our town”. The challenge comes when they fail to examine the entire business model, and what type of work is involved with not only serving customers, but accounting, payroll, marketing, and all the other necessary tasks. They also fail to examine the time it is likely to take to turn a profit with this business model, and what type of profit they can reasonably expect.

Owning a Job, Rather than a Business

A critical part of understanding the business model is understanding how much income you can expect to make. There are some franchise businesses that have higher income potential; for example, in recent years, senior care and cleaning franchises have proven to be very lucrative. Others, such as fast food, tend to have smaller margins, and owning just one location might provide about the same income as your current job — along with the added stress of owning the business.

Not Having the Proper Financing in Place

Investing in a franchise involves more than just the franchise fee and cost to set up the location. You also need to have working capital for at least six months, and enough money to feed your family for six to nine months while you are waiting for the business to turn a profit. Another common challenge is the source of financing. For example, many opt for a home equity line of credit – this is particularly popular when home values are rising like they are now. But what happens if the business does not make it? With multiple loans on your house, you might find yourself over-leveraged and in danger of losing your home.

Looking for Immediate Passive Income

Setting up a franchise is hard work and there is no getting around that. Now over time, you may have a nice profit coming in and the ability to hire someone (that you can trust hopefully) to run your business on a day-to-day basis. But in the beginning, expect to put in long hours getting the business off the ground. Now, if this is a business you are passionate about, these can be long, enjoyable hours. But regardless, just know that there is no magic button that you can push to make your franchise successful. You need to put in the effort – especially in the beginning.

Honing in on One Particular Brand

It is great to partner with a franchise brand you like, but having an emotional attachment to a single brand can be a two-edged sword. Pursuing one brand can tend to cloud your judgment and cause you to only focus on the strengths without objectively examining the weaknesses. It is always a good idea to look at other options that are out there. There are, after all, literally thousands of available franchise brands across a wide range of industries. It never hurts to at least look at a few others that might be of interest to you. If, at the end of the day, you still end up settling on the brand you first looked at, you will at least do be making an informed decision with the knowledge of the other available options.

At Franchise City, we provide free, unlimited franchise consulting to help prospective entrepreneurs find the franchise business that best fits their passion, skills and budget. There is never a charge for our services, and franchisees never pay higher fees by going through a franchise broker. To learn more about how we can help you, fill out the contact form on the bottom of this page.

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