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Misconceptions and Mistakes: Where First-time Franchisees Go Wrong

Before you invest time and money in a franchise, it’s essential to understand the popular misconceptions of many first-time owners. Plus, you’ll want to avoid the biggest and most costly mistakes franchisees frequently make.

So, you’ve decided to follow in the footsteps of countless other entrepreneurs and buy your own franchise.

Perhaps you’ve been lured by the dream of being your own boss and operating your own business. You’re also comforted by the idea of having a foundation — a proven business and operational model — as well as the franchisor’s established infrastructure for support.

Know what you’re getting into

No matter which business opportunity you choose to pursue, you need to be aware of four leading misconceptions many first-timers have and avoid falling victim to them.

1. You’re going to “get rich quick.” In reality, no franchisor can make this promise. It could take one to three years before your business becomes profitable. In most cases, the franchisees that become rich own and operate several franchise units and locations.

2. Your success will come easy. Again, no franchisor can or will offer this type of guarantee. It’s a proven fact that franchise-based businesses can fail, no matter how well established or popular the franchisor. Your success will depend on a variety of important factors, such as your location and your ability to find, hire, and properly manage employees. Consider all these factors before pursuing any opportunity.

3. Your business will virtually run itself. In most cases, this couldn’t be further from the truth. First-time franchisees should be prepared to work six to seven days a week, between 10 and 15 hours a day — with no vacations. You can expect to work this schedule for at least the first year or two before the business becomes well established and starts generating a profit.

4. It will be a one-time investment. This too is false. In addition to the financial investment to become a franchisee and launch your business, there will be many additional and unexpected expenses. Plus, you’ll have to financially support yourself and your family using only your savings — or your spouse’s income — until your business starts generating a profit. Again, this could take a full year or longer.

Avoid these mistakes!

Now that you’re thinking more realistically about becoming a franchisee, consider the 10 most common mistakes first-time franchisees often make. Any of these can be extremely costly in terms of your finances and the time it will take to recover.

No. 1 You’re not cut out to own or operate a franchise. A franchisee must adhere strictly to the operational manuals, training procedures, and guidelines provided by the franchisor. There is no room to make your own decisions about how the business should be run, even if you believe your way is better. Many first-time franchisees have trouble, at least initially, following all the franchisor’s mandates.

No. 2 You select the wrong franchise opportunity. Don’t base your decision solely on income potential or the popularity of a franchisor. Make sure the business is viable when and where you’ll be operating it and that you have a strong knowledge and passion for that industry. Do your research. Once you narrow down the type of business you’re interested in, carefully look at each of the unique franchise opportunities available, the stability and reputation of each potential franchisor, and the potential you have for becoming successful. Pursue those opportunities that mesh with your experience, knowledge, finances, interests, and commitment level.

No. 3 You neglect to fully research the franchise. It’s very easy to get caught up in the hype surrounding a business opportunity. Don’t let that happen. Crunch the numbers, interview existing franchisees, perform your own local research, determine demand for the product or service in your area, and do what’s necessary to become an expert in the industry or type of business you plan to operate. Make sure the business has long-term growth potential and isn’t capitalizing on a current trend or fad that may be gone in three years. Also, the individual franchisees should be sharing in the franchisor’s profits.

No. 4 You don’t have a true passion for your franchise. In addition to truly understanding the industry and business, it’s essential you have a passion for it. You’ll find it much more enjoyable to go to work each morning if you’re enjoying what you do. In the months and years to come, you will be required to make personal and financial sacrifices to ensure the success of your business. Remember, you’re probably making a five, 10, or even 20-year commitment, assuming your business becomes successful.

No. 5 You select an unsuitable location. Just because a specific type of business does well in one geographic area does not mean the same business, operated the same way, will do well in another location. Choose wisely. Make sure there’s a sufficient and established customer base in your area. Your site should be in a high-profile location and be convenient for your potential customers so you can optimize your chances for capturing business.

No. 6 You didn’t line up finances to support the costs of a startup. There will be a lot of extra costs besides the expenses listed in the franchise opportunity’s Uniform Franchise Offering Circular (UFOC). So make sure you have access to enough money to support yourself and your business until it becomes profitable. Have a plan for dealing with unexpected expenses. Lack of proper funding is a major reason many startup businesses fail. You’ll also need a backup plan in terms of your personal finances.

No. 7 You neglected to market, advertise, and promote your business adequately. Don’t assume the franchisor’s regional or national marketing efforts will be enough. Just because you’re working with a well-known franchisor, you’ll still need to promote your new business heavily to the local community. The cost of these local advertising, public relations, and marketing efforts come out of your pocket and are above and beyond the fees you pay to the franchisor for regional or national advertising. Properly marketing your business on a local level could mean the difference between success and failure.

No. 8 You didn’t hire the right group of employees. Even if you plan to be on site, operating your business every hour of every day it’s open — which is utterly unrealistic — you’ll want to hire friendly, reliable, and dedicated employees to help with day-to-day operations. And they’ll need to be managed properly. Learning how to hire and manage employees is a skill unto itself. Finding reliable, honest, customer service-oriented, hard-working employees is one of the biggest challenges most franchisees face. It’s also essential to hire an experienced, honest, and reliable manager who will be on site when you’re not there.

No. 9 You didn’t prepare yourself and your family for the time commitment. Whatever amount of time you thought you’d need to launch and initially operate your business probably needs to be doubled or tripled. This means you’ll need to forego vacations, rest and relaxation, and quality time with your friends and family, at least initially. You may be forced to miss family gatherings or other special events, for example, in order to work nights, weekends, or holidays. Make sure you and those you’re close to understand and accept this in advance. Otherwise, your business could put a serious strain on your relationships.

No. 10 Your income expectations were too high. Even after your franchise unit is successful, you may not generate the level of take-home pay you initially thought you would. Many franchisees could earn an equivalent or higher income working for another employer, as opposed to operating their own business. Work with an accountant to ensure the financial projections for the business are realistic and meet your personal goals, needs, and expectations.

Preparation is everything

By overcoming the popular misconceptions of most first-time franchisees and taking steps to avoid the most common mistakes, you’ll be well on your way to pursuing a successful business venture. Preparing yourself, both emotionally and financially, for what’s involved when you become a franchisee is essential. Be ready to wear many hats, so to speak, and to encounter stressful situations that will require you to make important decisions rather quickly.

If you’re new to operating a business, especially a franchise-based business, it’s absolutely essential to surround yourself with the knowledge and experience you’ll need — in the form of a competent franchise attorney and accountant, for example. And while you’ll never want to rely solely on the support and training offered by the franchisor, you should utilize every service the franchisor offers.

And most important, read and make sure you fully understand every word in the UFOC and the operating manuals provided by the franchisor before you buy. If necessary, have your lawyer explain the legal and technical jargon.

Make sure you weigh all the pros and cons and determine whether you truly want to become a business owner with these responsibilities. After you commit to becoming a franchisee and sign the appropriate contracts, including a real estate lease, it’s extremely difficult to pull out of the venture without suffering devastating financial losses.

That said, many well-prepared and dedicated franchisees become extremely successful and wind up pursuing a long-term, highly lucrative business venture that’s also emotionally rewarding.

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