Do you Have the Right Franchise? 5 Clues to Find OutAug 23, 2022
Choosing the right franchise is a very challenging process. Some franchisees may have already started operations and still wonder if the business concept they acquire is the ideal one or not.
How can you tell if you have the right franchise for you? What can you do if you realize that the brand you chose is not your best fit? Answering these questions as quickly as possible is very important for your success as a franchise business owner. And that’s what we’ll be exploring in this blog post.
5 ways to detect if your franchise is the right one
First, you have to understand that every franchise is different, especially in terms of the effort and the support needed to operate. The unit economics in the business model is also different, even within the same industry.
Once you are clear on this, there are several reasons that'll make you suspect that a franchise is not perfect for you.
1. You have less revenue than you calculated
In most franchises, the level of investment to open a unit is directly related to the sales volume, especially for mature and high-awareness brands. When you do your due diligence and you research the disclosure documents for each of the brands that are appealing to you, you’ll be able to determine what is the average revenue for those franchises you are interested in.
There are very few exceptions because volume can be related to novelty, which is something that won’t normally last. But generally speaking, franchise businesses that have more volume are brands that require a bigger capital.
2. It gives you less profit than you expected
Maybe you thought since you were making an X investment you were going to have two, three, four, maybe even a 10 X return. But in the franchise world and the retail industry, and within brick-and-mortar businesses, or business-to-consumer (B2C) models, there is a financial reality.
In the economics of a business, the type of profitability you could expect, if running absolutely perfect, is pretty much set. While you may not be able to fully see all the details in the franchise disclosure document (FDD), you do have access to talking to fellow franchisees of the brand to inquire what is the unit economics for that business.
That will help you understand profit loss statements, financials, breakeven point, and so forth, so on, to be clear that when you make X investment, you'll have X or Y profit.
If this is one of your concerns, you can still do the research. Find out from other franchisees, especially the great brand operators, what is the level of profitability that they can acquire based on their revenue.
That will give you an idea of where you are compared to them. If you are under that level, think about what’s missing for you to be able to achieve the profitability that that brand, business model, and unit economics of that franchise can provide.
3. It represents more work than you anticipated
People tend to think that because the franchisor provides all the details, training, support, materials, and resources to duplicate the business, it’s all set for success. But franchises require you to be there, present, leading, and overseeing the operations. That’s one of your roles as a franchisee. How much involvement you need to have will depend on your franchise systems, but it is never going to be zero.
If you have very good business management systems, they are documented, and you train your leaders so you can delegate operations, then maybe you’ll have less work. But if you are managing the business by yourself, then there will be a lot more work.
To have a profitable business, you must be involved. Otherwise, you won’t be able to achieve the revenue and you could even have less profit.
4. It gives you more problems than you thought
Yes, the last years have been very challenging. Between Covid, inflation, staffing challenges, and geopolitics, business owners have experienced a lot of disruption. This is the reality of entrepreneurship. Sadly, having the financial freedom of owning a business and dictating what you do in it has a cost.
But if you are still a franchisee today and your business is still operating, I’m sure that in the past years you have learned much more than a typical franchisee would have over ten years of experience.
This sets you up for a great future. If you apply all of this knowledge and continue to learn, you’ll be able to accelerate your growth.
5. You are not able to grow as you want
If you got into franchising to build a multi-unit enterprise, that means that from the get-go you needed to negotiate an area agreement, meaning that you can develop several units in a specific geographical zone. If you only acquired the rights for one unit and you have no more space in the market with that brand, there’s not much more you can do other than acquire franchise units in your area, which is a much longer plan of growth, but still possible.
It is a lot easier to negotiate area agreements from the beginning so that you can block or retain those areas and grow as soon as you're ready or the agreement says so.
If the challenge you are facing is growing your sales, then you need to take certain actions. Keep in mind that brand recognition will bring you revenue automatically but then you have to make a profit with your business management systems. And, to increase it, you must execute the brand with a high level of excellence and do local store marketing.
These clues can help you determine if you have the right franchise for you. If you realize you do not, my high recommendation is to make a change, especially if the issue has to do with your knowledge, skills, or tools.
One thing you can do is reach out to us! The American Franchise Academy helps franchisees increase their opportunities for success and maximize their potential by providing tools to allow them to run their franchise easier and with a lot more profit.
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- Are you aware of how what’s the average sales volume and profit you can make with your franchise?
- Are you struggling with your franchise due to the model itself or because of your knowledge, skills, or tools?
- How much involvement do you want to have in business operations and management?
- How refined are your business management systems?
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