By Cory Barber.
If you are seriously entertaining the idea of buying a franchise, you need to understand the psychology that is behind a franchisor's decision to award a franchise to the "right" person. There are certain essential skills and personality characteristics that encompass a "model" franchisee which franchisors absolutely require, so before you go any further down the road to franchise ownership, you had better do a self-inventory and make absolute certain you have them.
Obviously, if you are considering a handyman or home improvement franchise and you've never used a hammer or a saw, this could be a serious problem. Or if you are looking at a certain business to business franchise, but you hate selling, you are all but guaranteeing misery. But those aren't the kind of skills that I'm referring to here.
Regardless of which specific franchise you are considering, you need to possess and exhibit some basic, key skills that will fuel the overall potential for success of your franchise business. Franchisors have spent plenty of time and money researching what the profile of the ideal franchisee looks like. Here are a few mandatory traits:
Commitment to following a proven system. Franchise systems are in place because they work. It's that simple. If you're nickname is "Genius" because of your brilliant, super creative ideas that you come up with daily, then franchising is not for you. Go back and read the previous sentence again. It is imperative that you are passionate about the product or service and are completely committed to executing the company's marketing plan. If not, consider starting your own business.
Superior People Skills. You need to enjoy working well with others as a team. If you don't like interacting with others, you'll become stressed, your employees and customers will sense it, and ultimately your business will suffer. Instead, display the positive behavior that you want your employees to model when dealing with your customers. A happy, positive, "customer is always right" attitude must prevail at all times by you, your managers, and the employees.
Tremendous Work Ethic. A must for any potential franchisee. If you don't possess strong, disciplined work habits and have burning desire, you might as well work for someone else and punch a time clock. Any successful franchisee will tell you that they work until the job is done. They don't quit when the whistle blows. They'll do anything it takes to get the job done. Having true passion to work for yourself will tend bring out this work ethic automatically.
Well-Capitalized. Obviously, franchising costs can be significant. Franchisors will not move forward with candidates that are under capitalized. You're facing an initial investment, the franchise fee, and ongoing royalties due to the franchisor. Most small to medium sized franchises require a franchise fee of $5,000 up to $30,000. Royalties are usually a percentage of the income that your business generates, which you in turn pay the franchisor, typically ranging from 3%-7%. Don't let these costs scare you, though. In return, you are receiving the use of the "brand", which is significant in that you'll attract customers immediately. Many franchisors offer assistance with financing. Also, you'll tap into the volume discounts on product purchases you're entitled to as a result of being a franchisee.
Finally: research, research, research. And seek out assistance. It's virtually impossible to conduct a thorough franchise search alone. A seasoned franchise consultant can arm you with the knowledge you need to make an educated decision on the business that is the closest fit to your specific requirements.
Franchising is a great business model if you have the necessary skills and mindset to follow a winning formula. If you truly possess the characteristics spelled out above, chances are you have a solid foundation to be a successful franchisee.
July 21, 2009
The Franchise Agreement - Read Before You Sign
By Cory Barber.
Some of the candidates that I work with as a franchise consultant are not clear on the overall importance of the franchise agreement and what it represents.
The UFOC (or franchise disclosure document) provides potential franchisees with specific information about the franchisor and their system during the early stages of the due diligence process. Some candidates make the mistake of "speed reading" or scanning the franchise agreement because they have a good understanding of the details outlined in the FDD. This is not a good idea.
The franchise agreement is the actual written contract signed by both the franchisor and the franchisee upon completion of a franchise sale. The franchise agreement is the heart and soul of the business relationship between the two parties. It spells out in very specific detail how the franchisor expects the franchisee to conduct business, and outlines the obligations of both parties.
All franchise agreements are not identical, but they do contain similar provisions, and I have listed some of the key items below, along with a brief explanation.
Territory Guidelines. Most franchise agreements will designate a very specific territory in which the franchisee may do business. Sometimes exclusive territorial rights are granted.
Fees Payable To The Franchisor. This includes the total investment, franchise fee, and ongoing royalties and when the royalties are to be paid.
Services Provided By The Franchisor. Outlined here is the ongoing training and support, advertising commitments, and the products and services to be provided by the franchise.
Term And Renewal Of Agreement. The specific period of time of the agreement is defined here, as well as renewal details. The typical duration is somewhere between 5 and 20 years. Termination policy is discussed as well.
Site Selection. This section indicates who is responsible for site selection and the level of assistance provided by the franchisor. Ultimately, the franchisor reserves the right of final approval of the location.
Advertising And Promotions. The franchisor must approve the content, appearance, and frequency of advertising executed by the franchisee.
Selling And Transfer Rights. Franchisors typically reserve the right to approve the terms of any transfer and the transferee. Also, franchisors usually specify that they have the right of first refusal or to buy back a franchise.
Since this is the binding contract between the franchisor and the franchisee, I always highly recommended that you hire an experienced franchise attorney to review the agreement in its entirety so you have a clear understanding of all of its contents. An attorney who is inexperienced with franchise law will not be qualified to adequately ensure your complete understanding of the details set forth in the franchise agreement.
Some of the candidates that I work with as a franchise consultant are not clear on the overall importance of the franchise agreement and what it represents.
The UFOC (or franchise disclosure document) provides potential franchisees with specific information about the franchisor and their system during the early stages of the due diligence process. Some candidates make the mistake of "speed reading" or scanning the franchise agreement because they have a good understanding of the details outlined in the FDD. This is not a good idea.
The franchise agreement is the actual written contract signed by both the franchisor and the franchisee upon completion of a franchise sale. The franchise agreement is the heart and soul of the business relationship between the two parties. It spells out in very specific detail how the franchisor expects the franchisee to conduct business, and outlines the obligations of both parties.
All franchise agreements are not identical, but they do contain similar provisions, and I have listed some of the key items below, along with a brief explanation.
Territory Guidelines. Most franchise agreements will designate a very specific territory in which the franchisee may do business. Sometimes exclusive territorial rights are granted.
Fees Payable To The Franchisor. This includes the total investment, franchise fee, and ongoing royalties and when the royalties are to be paid.
Services Provided By The Franchisor. Outlined here is the ongoing training and support, advertising commitments, and the products and services to be provided by the franchise.
Term And Renewal Of Agreement. The specific period of time of the agreement is defined here, as well as renewal details. The typical duration is somewhere between 5 and 20 years. Termination policy is discussed as well.
Site Selection. This section indicates who is responsible for site selection and the level of assistance provided by the franchisor. Ultimately, the franchisor reserves the right of final approval of the location.
Advertising And Promotions. The franchisor must approve the content, appearance, and frequency of advertising executed by the franchisee.
Selling And Transfer Rights. Franchisors typically reserve the right to approve the terms of any transfer and the transferee. Also, franchisors usually specify that they have the right of first refusal or to buy back a franchise.
Since this is the binding contract between the franchisor and the franchisee, I always highly recommended that you hire an experienced franchise attorney to review the agreement in its entirety so you have a clear understanding of all of its contents. An attorney who is inexperienced with franchise law will not be qualified to adequately ensure your complete understanding of the details set forth in the franchise agreement.
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