The success of a franchise network depends largely on the performance of its individual franchisees. Since they’re the ones executing the brand’s strategy day-to-day, the success of new store openings and overall brand growth hinges on how well each franchisee performs. If you’re thinking about becoming a franchisee or hiring one as part of your franchising strategy, you might be wondering what makes some franchisees successful while others struggle.
There are many factors that influence the performance of a new or prospective franchisee, from personal characteristics to financial resources and willingness to put in hard work. Read on for details about four critical factors that make or break a franchisee — no matter what type of business you’re considering.
1. Preparation and Timing
It can take months or even years to find the right franchise opportunity. In fact, a study by MBO Partners found that the average franchisor-franchisee relationship lasts about 7 years — far longer than the average business relationship. With so much at stake, you want to make sure you’re fully prepared for the franchise purchasing process. Some of the most important preparations include:
- Finding the right franchise brand
Before you even start looking at franchise opportunities, you need to research the best brands and markets for you. If you want to become a generator dealer, for example, make sure you do your due diligence to research the know-how of this particular niche. Franchisors want to see that you’ve done your homework and know the advantages of their business.
- Having the right financial resources in place
You want to make sure you have enough cash saved up to buy into the franchise, cover the cost of initial training, and provide working capital to get your new location off the ground.
- Having a strong credit score
Your credit score will determine what loans you qualify for. While some franchisors might accept you even if you don’t have the best credit, it’s always better to have lenders see you as a lower risk.
- Obtaining the appropriate licenses and permits
Many types of businesses require special licenses or permits for their owners to operate legally. Franchisors often require additional licenses or permits, especially if you plan on operating from a food truck or moving the business to another state.
- Finding the right location
Most franchisors expect you to help finance the purchase of the real estate for your new location. While they may offer suggestions on what to look for, they can’t dictate your decision. So, you need to be prepared to make sound real estate decisions that fit the needs of your business.
2. Networking and Brand Awareness
One of the best ways to find out whether a franchise is right for you is to talk to current franchisees. Talking to current franchisees is a great way to learn more about the brand, the franchising process, and the day-to-day operations of the business. It can also help you gauge whether this is the right fit for you.
You may also consider joining a franchisee association. These groups provide networking opportunities, help you learn about the industry, and offer tips for success. Many also host regular webinars or conferences for franchisees to build brand awareness and share advice.
Another way to build brand awareness is to follow the brand on social media. For example, in the field of tools franchise, a tool truck franchise won’t be considered “the best” if people don’t talk about it on social media, especially nowadays that the number one platform of news dissemination is via the internet.
Many brands have official pages on Facebook, Instagram, and Twitter. If you’re thinking about becoming a franchisee, be sure to follow and interact with the brand on these platforms.
3. Financial Strength
Finances are one of the most important factors in any business model. You need to make sure that the franchisor has the financial strength to support you throughout the life of the business. You should look for franchisors that have a proven track record of financial success. A great way to see how the franchisor has performed in the past is to read its income statement.
An income statement shows how the company generates revenue and what expenses it needs to maintain operations. Another way to evaluate the financial strength of a franchisor is to look at their balance sheet. A balance sheet is an annual report that details the company’s assets and liabilities.
You should be wary of franchisors that don’t release their balance sheets. You should also be sure to read the franchisor’s Franchise Disclosure Document (FDD) and franchise agreement. Both of these documents outline the financial risk of becoming a franchisee, as well as the franchisor’s expectations.
Make sure there are no red flags in these documents that might indicate financial risk. – You should also get a background check on the franchisor. While this won’t tell you everything about the franchisor’s financial strength, it can help you rule out any red flags.
You can usually get a background check from your state government for free. – Finally, you should make sure you have enough money saved up to take on the financial risk of being a franchisee. You don’t want to put all your eggs in one basket, so having a backup plan is important.
4. The Right Mentality
No matter how prepared you are, owning a franchise isn’t always easy. You have to be prepared to face challenges, work long hours, and make tough decisions that impact your life and the lives of others. You also have to make sure that you have the right mentality for franchising.
You need to know that franchising isn’t for everyone, and it may not be the best fit for you. If you’re thinking about franchising, there are a few questions you can ask yourself to make sure franchising is the right path for you.
First, ask yourself if you’re ready to follow someone else’s rules. You’ll have to follow the rules and guidelines set out in the franchise agreement, as well as the rules set out by the franchisor. Next, ask yourself if you’re ready to follow someone else’s rules.
You will be working for the franchisor, so you need to make sure you’re ready to follow their directions and be part of the team. And finally, ask yourself if you can handle the risk.
Franchising isn’t for the faint of heart, because you never know what challenges you might face. You need to be prepared to work hard, make sacrifices, and deal with risk. If you can answer these questions with a “yes,” then franchising could probably be the right path for you.
Final Thoughts
The success of a franchise business depends on the individual franchisee and their willingness to commit time and effort. If you are thinking about becoming a franchisee or even just applying for one, it’s important to understand what that commitment involves. Being a good businessperson isn’t enough; you also need to be a good salesman. Focusing on the four factors below will help you succeed in any franchise relationship and become an asset to your new franchisor.
