So you fancy a franchise eh? You like the sound of the whole ‘in business for yourself, but not by yourself’ thing. You’ve done your research and you reckon you can see the way ahead. You reckon your future lies under the banner reading ‘Franchise’.
Then you come up against the $64,000 questions…
1) How much will it cost?
2) Can you afford it?
Now if you are at all human you will have done what every prospect on the path to making a purchase of any sort does. You will have pictured what it will be like to own that franchise. Which is perfectly understandable.
BUT
You are also laying yourself open to the biggest mistake that prospective franchisees can possibly make. You see you can be in danger of letting your judgement be affected by a fatal affliction that is the cause of huge misery in many walks of life, but especially in Franchising. That affliction is
OVEROPTIMISM
Even the most level-headed individual is prone to it from time to time. Most of the time you get away with it, but in franchising there are several things that make this a hugely dangerous problem. That’s because of the following points:
1) The prospective franchisee (You?) is often not experienced in the world of small business finance, so they are leaning heavily on others to provide that experience. The major supplier is frequently the franchisor. A person or company who has a different agenda to you. They want to grow their business and while they don’t want you to fail they are certainly more willing to risk your future they you might be.
2) You may not be experienced in finance and cannot pull together a cash flow forecast.
3) You may know exactly how much you’ve got to spend and believe that it ‘should be enough’.
4) Your optimistic assumptions are based on doing as well or better than others already in the field.
5) You haven’t factored in what you really need to live on. What will see you on the short road to bankruptcy is a failure to recognise that these problems have to be acknowledged and dealt with. Optimism will mask these unpalatable facts sometimes until it is too late.
So to avoid disaster:
1) Create several cash flow scenarios. Yes, be optimistic, but also be neutral and pessimistic too. Then look at the pessimistic forecast. Now be even more pessimistic. Can you afford to fund the franchise and yourself at that rate of profit?
2) When you think you’ve covered the options take your thoughts along to a friend or somebody who’s opinion you value and who you can trust to give you their real thoughts rather than what you want to hear. Tell them you need to check the reality of the deal.
3) Take your proposition along to a local accountant or book keeper. They will give you their advice for a fixed fee and it needn’t cost the earth. If you are worried about the cost, try to compare the cost with the amount of money you could lose. I suddenly looks a little better doesn’t it.
4) When you are lying in bed in the still of the night ask yourself if you are really sure that the numbers stack up. Are you really certain that you are being realistic rather than optimistic.
5) Take another look at the numbers that the franchisor is giving you as an example. Ask yourself exactly how you are going to replicate the numbers that they are quoting. If they are suggesting that you can make quarter of a million in the first year, ask yourself whether you can really make that money – where are the customers coming from in the real world rather than on paper.
6) Look again at the assumptions you are making and decide what would happen if the assumptions were slightly out? Would it be a disaster or would it be OK.
Finally make sure you do every bit of research you can think of, and get a really good guide to help you create the structure for your investigations. You may want to consider my book – www.realworldfranchising.com it covers all of these items in more depth and a lot more too.
Gareth Williams is an advisor on franchising from the franchise buyers perspective. A past franchise owner he has real experience of franchising 'from the trenches'. He has written what many consider to be the definitive guide to buying a franchise. This is available from http://www.realworldfranchising.com
Article Source: http://EzineArticles.com/?expert=Gareth_Williams
Then you come up against the $64,000 questions…
1) How much will it cost?
2) Can you afford it?
Now if you are at all human you will have done what every prospect on the path to making a purchase of any sort does. You will have pictured what it will be like to own that franchise. Which is perfectly understandable.
BUT
You are also laying yourself open to the biggest mistake that prospective franchisees can possibly make. You see you can be in danger of letting your judgement be affected by a fatal affliction that is the cause of huge misery in many walks of life, but especially in Franchising. That affliction is
OVEROPTIMISM
Even the most level-headed individual is prone to it from time to time. Most of the time you get away with it, but in franchising there are several things that make this a hugely dangerous problem. That’s because of the following points:
1) The prospective franchisee (You?) is often not experienced in the world of small business finance, so they are leaning heavily on others to provide that experience. The major supplier is frequently the franchisor. A person or company who has a different agenda to you. They want to grow their business and while they don’t want you to fail they are certainly more willing to risk your future they you might be.
2) You may not be experienced in finance and cannot pull together a cash flow forecast.
3) You may know exactly how much you’ve got to spend and believe that it ‘should be enough’.
4) Your optimistic assumptions are based on doing as well or better than others already in the field.
5) You haven’t factored in what you really need to live on. What will see you on the short road to bankruptcy is a failure to recognise that these problems have to be acknowledged and dealt with. Optimism will mask these unpalatable facts sometimes until it is too late.
So to avoid disaster:
1) Create several cash flow scenarios. Yes, be optimistic, but also be neutral and pessimistic too. Then look at the pessimistic forecast. Now be even more pessimistic. Can you afford to fund the franchise and yourself at that rate of profit?
2) When you think you’ve covered the options take your thoughts along to a friend or somebody who’s opinion you value and who you can trust to give you their real thoughts rather than what you want to hear. Tell them you need to check the reality of the deal.
3) Take your proposition along to a local accountant or book keeper. They will give you their advice for a fixed fee and it needn’t cost the earth. If you are worried about the cost, try to compare the cost with the amount of money you could lose. I suddenly looks a little better doesn’t it.
4) When you are lying in bed in the still of the night ask yourself if you are really sure that the numbers stack up. Are you really certain that you are being realistic rather than optimistic.
5) Take another look at the numbers that the franchisor is giving you as an example. Ask yourself exactly how you are going to replicate the numbers that they are quoting. If they are suggesting that you can make quarter of a million in the first year, ask yourself whether you can really make that money – where are the customers coming from in the real world rather than on paper.
6) Look again at the assumptions you are making and decide what would happen if the assumptions were slightly out? Would it be a disaster or would it be OK.
Finally make sure you do every bit of research you can think of, and get a really good guide to help you create the structure for your investigations. You may want to consider my book – www.realworldfranchising.com it covers all of these items in more depth and a lot more too.
Gareth Williams is an advisor on franchising from the franchise buyers perspective. A past franchise owner he has real experience of franchising 'from the trenches'. He has written what many consider to be the definitive guide to buying a franchise. This is available from http://www.realworldfranchising.com
Article Source: http://EzineArticles.com/?expert=Gareth_Williams
Labels: Franchise Opportunity
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