When I first met them 3 years ago, they had stars in their eyes. Yesterday I saw desperation. That sounds very dramatic, unfortunately it is absolutely true and tells a story of one of my favourite clients.
And from his experience we must learn a few lessons.
Franchising is very an interesting concept. The franchisor sells the risk, but keeps the income. The franchisee runs the risk and does the work. If you ever buy a franchise, be very sure that the franchisor knows what he is doing. Too many franchisors fly by the seat of their pants. They allow franchisees to open stores without any scientific idea if the location is viable or not. And then, eventually, you see one owner after the other disappear, normal thoroughly disillusioned and financially broken. And the franchisor will be the first to tell you that you are a bad businessperson. You have read the Donald Trump Quotes, so you will know that walking away is always an option. So that is lesson 1: Because somebody is selling franchises does not mean that he knows anything. He probably is just experimenting at your cost!
Beware of landlords and promises. If somebody promises ANYTHING get it in writing – or walk away. If somebody promises to open a shop at a filling station, get it in writing. If a landlord says he is starting phase 3 May next year, get it in writing. If he says he starts a hotel in August next year, you know what to do. And then get an agreement as to your rent should he NOT do it. And if he is not prepared to put it in writing? Well then you know whom you are dealing with and you always have that option, until you sign it away! You can walk away. That is lesson 2: beware of promises by landlords and franchisors.
Lease contracts and franchise contracts are surely one-sided affairs. You end up with a lot of obligations and responsibilities and curses for not following rules. And what do you get in return? The right to use somebody else’s name and systems. Be sure that there you contractually have more rights than that and that you can enforce it. But above all, be sure that the franchisor has a track history of success. Speak to other franchisees, as many as possible. Try to get hold of franchisees who have sold, for different reasons. That is lesson 3: confirm everything with people already in the system.
Lesson 4 is simple: Beware of the stars in your eyes. When you buy any business that is in financial trouble, it is very easy to say the previous owner is stupid, can’t work with money, can’t market and sell, did not maintain stock levels, is a bad businessperson. But you are all of those things. You may be right, but be very sure that you don’t see darkness for light through the stars in your eyes.
When you buy a business, be sure you control the important things – like selling. For instance: you buy a distribution franchise to distribute advertising leaflets. You don’t negotiate the contracts, it is done on a national corporate level. If the company does bad selling, where does it leave your business? I will tell you: with the same overheads but much less turnover. Who will go bankrupt? That is a no-brainer, isn’t it? That is lesson 5: Be in control of the source of business, so that you can succeed without head office.
I guess the bottom line is, always consider the downside, look at what can go wrong and if you can handle it and decide how you will handle it. And keep your options open.
This post can make a huge difference to your life and keep you out of financial hell. Study it carefully.