Should you buy a business or invest in a franchise?

We have all seen the adverts that ask: “Want to be your own boss, but without the risks of starting a business from scratch?” But what are they really offering? For your to buy a business?

If you choose to invest in a franchise system rather than set up on your own or buy an existing business the statistics do appear to be on your side. Entrepreneurs who start a business with a franchise versus those who buy a business are more likely to succeed within the first five years.

This does not, however, mean that success is guaranteed or handed to you on a plate; just like a job, or going it alone, you will only get out what you are willing to put in. There are many more statistics and statements about the franchising industry in the UK. Some are more accurate than others.

There are many more statistics and statements about the franchising industry in the UK. Some are more accurate than others.

Just because many franchisees have been successful in a particular model does not mean that you will be too. Some franchisors are much better than others at ensuring they only take on suitable people. These tend to be the franchisors with rigorous selection processes. They see those who apply for their franchise as applying for the role of regional managing director, which for most of us is the most senior role we’ve ever applied for. These are the franchisors that “award” franchises to suitable applicants rather than “sell” franchises to anyone who is prepared to give it a go. Should you do this rather than buy a business?

Is there such a thing as an ideal franchisee?

If you can answer “Yes” to all of the below then franchising could well be right for you.

• Do you possess transferable skills, such as being organised; reliable; conscientious; approachable; a relationship builder; a people person?
• Are you the sort of person that takes responsibility for reaching your goals?
• Do you own the problem rather than passing the buck to others?
• When you decide to do something are you prepared to give it 100%?
• Do you have a “Can Do!” attitude
• Have you defined your goals and what you want to achieve from running a business?
• Do you know who YOU are? It’s essential to get a franchise that fits YOU.

The most important thing to remember is that the franchisor is not providing ‘success on a plate’, what you actually get for your money is the following:

• A proven operating system – but you must follow it diligently
• Initial training and support. Many people use franchising as a way of transitioning into a completely new vertical market in which they have no prior experience. The franchisor provides the industry knowledge and training. The franchisee provides the soft skills necessary to be the local owner for that franchise.
• Marketing and sales strategies. On day one a new franchisee becomes sales & marketing director for their business. The franchisor will show you the various strategies for acquiring new customers, but the franchisee must then implement these strategies on an ongoing, daily basis.
• Professional branding. A professional website, email address, business cards, logos, etc.
• Software. The amount and complexity of the software depends on the franchise, but you should receive access to everything you need as part of the franchise.

The rest as they say ‘is up to you’. A good franchisor will explain that the success or failure of you franchise is in your hands, they know that their business model works and have proven it over and over again. So what are the most common pitfalls and how can you avoid them. Here are just a few:

• Expecting to earn significant money from day one. Realistically you should be able to cover all of your personal costs and the costs of running your business for 3-18 months. The amount of time varies depending on the business model of the franchise you’ve chosen to invest in. Your franchisor should always be able to give you an honest assessment of how long this is in their business model.
• Lack of working capital. You must properly consider the ongoing operating costs of your new business. If you run out of working capital before the business starts to regularly make a month-on-month profit, then you will almost certainly fail. Ask your potential franchisor about your cash flow via real examples of other franchisees so you have a good idea of how much working capital you will need.
• Your business plan is too optimistic. NEVER be overly optimistic! ALWAYS stress test your plan: Assume your sales are much worse than expected. Assume your costs are much higher than expected. Can you still stay in business if that happens? Basically make sure you have both eyes open from the beginning.
• The franchisor will ensure I succeed. The franchisor is not a miracle worker. They have a business format which they can show you and teach you how to operate. But you have to put in the necessary effort to make it work. The franchisor can’t make it work for you.
• Not making the necessary sales appointments. If a franchisors model says you should aim to meet 5 potential customers every day, then 5 it is. 3 is not good enough and if you regularly fall below the targets you are unlikely to succeed.