Curiosity is key

Investing in a franchise is generally considered a less risky way of going into business when compared to a new business start up. However, as Richard Holden explains, it's the research that's key

Sector statistics bear this out as entrepreneurs benefit from operating under an established brand with training and ongoing support from the franchisor. However not all franchises succeed and there are no guarantees for the investor. You can boost your chances of finding a winning franchise by doing painstaking research.

A franchise company usually develops from a business that has been trading successfully in its own right for several years. The business owner has the desire to develop their product or service to a wider audience.

The business may well have operated in several locations itself beforehand or may learn how the concept operates in new locations through recruiting pilot franchisees to test the model. The franchise model is usually modified, refined and improved with any teething difficulties ironed out through these pilot operations.

Pilot franchisees are taking a significantly greater risk when investing in a franchise concept before it is fully tested and proven. Consequently to reflect their risk, early investors often have lower initial investment costs than someone investing in the business when it is well established. If you are a risk taker then investing in a franchise at the early stages may well be attractive to you. Banks will take a more cautious approach to financing a franchise opportunity before it has been fully tried and tested and a track record of successful franchisees has been established.

Opening their first few franchised units is often the most challenging stage for a franchisor. Investors should expect the franchise model to develop as the franchisor learns what works.

It is essential that you talk to existing franchisees in the system before making your commitment to invest. Many potential investors have unrealistic expectations about the profitability of their business so it is useful to ask existing franchisees about whether your own projections are realistic and achievable. You also want to establish how supportive the franchisor has been in assisting existing franchisees. In general the more supportive franchisors, who are willing to help individual franchisees become successful, are the most likely to achieve greater longevity.

Your own success as a franchisee will also depend on the operational support offered by people at head office. Find out about their experience and ask existing franchisees about their opinion on how accessible and competent support staff are. If the franchise network is generally happy, with a great attitude towards the achievement of mutual success, then you should have a degree of comfort that the franchise has a good chance of survival.

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