Investing in a franchise is a most rewarding experience for an entrepreneur but the decision on which franchise to buy is very critical and crucial because of the short and long term repercussions. To ensure that your decisions turn out to be fruitful and positive, it is very helpful to follow few tried and tested guidelines. We have tried to list down few dos and don’ts for food franchise which can be handy if you are planning to pick up a franchise:
Conduct an exhaustive research
Be very thorough and perform an exhaustive research on all the available options before making any decision on picking up the franchise. Your investigation has to be comprehensive and has to consider the following points:-
- Reception of the brand and cuisine you are looking at.
- ROI of the money you are planning to spend and in how many years.
- Detailed comparison of setting up a new establishment versus investing in a franchise.
An in-depth comparative analysis between various restaurants available for franchise will help in drawing a decision on which franchisee to buy. The more RESEARCH you do, the better your decision is likely to be.
Speak to existing franchisees
Talk and know more about the existing franchisees of the brand you are planning to invest in. Get to know their experience with the parent restaurant in the past. Know the challenges which they face for their daily operations. Profit analysis can also be done, it may not be same for you but conclusions can be drawn. Find out about the franchisor’s involvement in marketing and PR activities.
Decide on Proven Profitable Venture
Regardless of what all factors get into deciding about buying a franchise, net profit is the main factor in the decision. It is always good to take up a franchise where the profits are guaranteed for long run and less risk is involved. Always get clarity on the products and services that are offered by the franchise and the exit plan.
Go through the legal documents thoroughly
It is very crucial to read the legal franchise agreements thoroughly with utmost attention to each word before signing it. Read and understand the sales literature, terms and conditions for franchise, Franchise Disclosure Documents (FDD), etc in detail. No question is too trivial to ask, hence clarify any and all doubts you want from the parent company before closing the deal. Look for any hidden costs, risks or T&C before getting into any kind of agreement. Study few balance sheets and P/L statements for better clarity.
Don’t hurry in deciding the franchise of the brand you would like to buy. Short-cutting on research can increase your failure risks. Don’t settle for anything that comes first in the way. Don’t trust anyone blindly in taking decision, find it out for yourself because ultimately it your money, your risk and your opportunity. You will always be the best judge for yourself. Always ask uncomfortable questions, this bring out the intent and character of the franchisor.
Don’t stretch your arm farther than your sleeves
Don’t over-extend or be optimistic about your own personal finances. Be realistic while quoting your finances. Established franchises like KFC, McDonald’s, Pizza Hut are very profitable in the long run but need extremely heavy initial investments. Think it through if you can spend so much and by when can you earn that much profit, always keeping some buffer capital.
Don’t take everything upon yourself
Don’t think that you alone can do all the research and manage everything. During the initial stage of setting up a franchise you will need help from friends and family, therefore take some suggestions from them and engage them into informal discussion about your plan. Consulting a franchise attorney is advisable unless you already run some franchisees of your own. Cutting down expenses on consulting professionals may deprive you of details critical to making good decisions.
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