Buying a business | 3 min read

5 mistakes to avoid when buying a franchise

Last updated: November 22, 2019

Buying a franchise can be overwhelming as you look to invest well in your future and give yourself the best chance to succeed.

Beware of the errors others have made and check out our top mistakes to avoid when buying a franchise.

1. Assume the franchise will be a success

Any new business venture involves risk and there’s really no such thing as a guaranteed success. If you’ve picked a good franchise model with evidence of successful franchisees, then you’re off to a good start. But staff, location or territory, and a solid customer base, along with many other factors all affect the success of a business. The advantage of franchising is that you have a tried and tested plan and you don’t have to go it alone. The unknown is how well you’ll implement it. Make use of the training and materials provided by the franchisor, but be prepared to take responsibility. To succeed you need to put the effort in.

2. Believe all the hard work has already been done

Being able to leverage the experience, brand and buying power of a franchise are some of the key reasons many people find franchising so attractive. However, assuming all the hard work has been done, all the problems have been solved and that you can just sit back and let the business run, is going to set you up for failure. While franchisors have gone through the trial and error to find out what works, there’s no shortcut to success and you’re going to have to work hard. Educating yourself, having a good relationship with your head office and other franchisees, having some financial acumen and following the systems and processes will give you a great start, but if you really want to prosper, be prepared to jump in and get your hands dirty.

3. Forget about your due diligence

Many franchise buyers seek feedback from their friends and family, but forget about getting advice from a professional who is experienced in franchising. Doing your own research and speaking to as many franchisees as possible is great, but it’s crucial to also engage financial and legal advisors to help you assess the opportunity before you dive in. Due diligence is often not given the attention it deserves, but really should play a key role in your pre-purchase decision making process. Don’t just rely on what the franchisor tells you – do a broad search on the brand, industry and trends, and get professionals involved.

4. Underestimate the investment

It’s not uncommon for franchise buyers to miscalculate both the upfront costs of getting started in franchising and the ongoing investment required to make your business a success. When you’re starting out, make sure you consider all the costs for legal and accounting fees, registration fees, paying tax and insurance, as well as leasing costs and any other expenses you may incur when setting up a new business. Avoid early cashflow problems by making sure you have enough capital to get you through the start-up phase. At the same time, explore the ongoing investment costs (which should be estimated in the franchise disclosure document) and investigate the personal time and energy you’ll need to put in to make sure your franchise is a success.

5. Buy for the wrong reasons

Picking a business that doesn’t align with your needs, or being “in it for the money” probably won’t set you up for success. Similarly, loving everything about the brand and being passionate about joining a particular franchise network aren’t a guarantee that you’ve found the best opportunity for you. Buying with only your heart or your head mean you could be getting into a business for the wrong reasons and drastically increasing the likelihood you’ll have issues in the future. Seek to understand the core values of the franchisor, talk with your family, do your research on the brand, and carry-out some thorough soul-searching to help ensure you’re buying a franchise for the right reasons.