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3 Mistakes To Avoid When Buying a Franchise

Steer clear of these three rookie franchising mistakes that can sink your new business before you start.

Opening your own franchise is a big opportunity, but it can be tricky. It’s easy to get caught up in the excitement or lost in a dizzying array of details. That’s why first-time buyers often make a number of franchising mistakes when they’re starting out. 

Mark Siebert, owner of iFranchise consulting in Homewood, Illinois and author of “Franchise Your Business,” says that there are three common mistakes that new franchise owners make when opening their business.

1.) Be Honest With Yourself

“The first mistake that people make is that they start by examining the franchise, and not examining themselves,” said Siebert. “People should really start the process with a careful self-examination before they start buying.”

He said owning a franchise is hard work, and not everyone’s cut out for it. Siebert said that the success of a franchise is very closely tied to who the franchisees are as people and as managers: What are their strengths? What is their risk tolerance? What are their desired earnings? What is their desired lifestyle?

Franchise owners should ask themselves those questions and answer honestly before they consider investing what could be their life savings in a business opportunity. 

In other words, if you’re looking to own a franchise because you think it will be a chance to sit back on a beach somewhere while others do your work, you may need to reconsider it as your next career move.

2.) Don’t Let Emotions Blind You to the Risk

It’s okay to be passionate about a new opportunity. But too many people will let emotions blind them to the complete picture of a business.

“What some franchisees do wrong is that they buy a franchise emotionally, without taking risk/reward into consideration,” said Siebert. “They fall in love with the concept, but they don't look at it from the standpoint of how great the risk is, how much the reward is and use that as a guideline for decision-making.”

Siebert says he examines the risk/reward proposition carefully with his clients. “There's nothing wrong with buying a franchise that has a higher level of associated risk. They can’t all be McDonald's in terms of low-risk franchises,” he said. “But you should certainly take a look at making sure that you get a higher return.”

But even so, emotion does have a part to play. 

“I think that to the extent that you are going to be an owner operator of a business, you have to recognize that this is going to be your life for the next 10, 15, 20 years, it's important to be emotionally connected to the franchise,” he said. “But at the same time, when you are in the process of buying a franchise, you want to look at it from the standpoint of making a good sound business decision. 

To do that, you need to at least remove some of the emotion from it by doing your homework and getting outside advice.

3.) Don’t Skip the Homework

Due diligence is an important franchise-investment process. You need to dig deep and really understand the background of the franchise to understand what you’re getting into, what effort you will need and what your expectations as an owner should be.  

But, it does require a lot of leg work, and according to Siebert, a lot of potential franchisees want to rush ahead without it. The prospective franchise owner is so in love with the concept and so excited to get going, they sometimes fail to do their research.

Siebert says that they fail to call all the other franchises to get first-hand information about their experience as a franchisee. They won't go and visit locations to see with their own eyes the reality of the situation on the ground. They won't sit down and develop a more-detailed business plan of how they will operate their business. They won't talk to bankers and lawyers and accountants.

Siebert says up-front research can save a lot of headache — and heartbreak — down the road.