Buying a franchise, like any other business investment, is a risky proposition. There is no guarantee of success; and, even if you are confident in your ability to build a profitable business based on the current economic circumstances, there is no guarantee that market conditions will remain constant. This is something that 2020 has made painfully clear.
With that said, there are certainly steps that franchisees can take to improve their chances of growing a successful business. In an article titled, How Do I Make My Franchise Successful?, the International Franchise Association (IFA) outlines what it calls, “10 keys for franchise success.” While this is a bit of a hyperbole, many of the IFA’s tips are in fact pretty good. Here, franchise attorney Jeffrey M. Goldstein discusses some of the highlights:
1. “Make sure you have enough money.”
The IFA’s first tip is also perhaps its most important. In order to succeed as a franchisee, you need to be able to invest the money required—whether you put up the money on your own or you obtain financing. You also need to be prepared to cover your operating expenses (and your own personal expenses) during the initial months of your franchise’s operations.
In Item 7 of the Franchise Disclosure Document (FDD), franchisors generally recommend that franchisees have a certain amount of “additional funds” on hand to cover their expenses for the first six to nine months. The IFA recommends determining, “how much you will need to live on for at least 12 months,” and setting this amount aside in case you are not able to draw a salary from your franchise’s revenue.
2. “Follow the system.”
While following the system will not guarantee your success, it will at least help ensure that you do not lose your franchise as a result of non-compliance. In franchising, standardization is critical not only to building and maintaining the reputation of the brand but also to facilitating the franchisor’s management of the franchise system as a whole. If you are seen as a “problem franchisee” because you consistently deviate from the system’s standards, this could spell trouble for your franchise.
3. “Stay in touch with your franchisor and other franchisees.”
The final piece of advice I’ll touch on from the IFA’s list of “10 keys for franchise success” is its recommendation to, “[s]tay in touch with your franchisor and other franchisees.” As a franchisee, you should be able to get in touch with your franchisor when you have questions or concerns, and building a strong relationship can help to improve your chances of success while also mitigating your risk of early termination. Communicating with other franchisees can not only provide you with a sense of community, but it can also help you determine when issues extend beyond your franchise, and when it may be necessary to band together as a group or association.
Discuss Your Franchise Opportunity with Franchise Attorney Jeffrey M. Goldstein
Jeffrey M. Goldstein is a national franchise attorney who has been exclusively representing franchisees and dealers for more than 30 years. If you are thinking about buying a franchise and would like to know more about the legal risks involved, we encourage you to call 202-293-3947 or contact us online to arrange a free initial consultation.
