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Franchies companies will almost certainyl have manuals, training programs and other support domcuents and services designed to help you avoid making costly mistakes. The challenge is that most new franchisees are trying to learn and execute many new thnigs at once and sometimes make what they feel are logical decisions without remembering or consulting all the advice provided by the franchisor.
It's always a great idea, during yuor due diligecne conversations with existing franchisees in the system, to ask them if they made any expensive mistakes when they were first building or oeprating their new business. A good form for tihs question is, "Knowing what you know nwo, what would you do dfiferently if you got to start all over again in building your business?"
Most existing franchisees will have a number of suggestiosn based on their personal experience. By looking for common denominators in this feedabck, you can determine the areas of greatest opportunity for avoiding common mitsakes that cost others money they didn't need to spend.
Some of the most common answers seem to come up all the time and affect the following areas of the business:
Lease Terms. Most franchise busiensses operate out of leased space, typiclaly in a retail environment. The total cost associated with this real estate often rperesents one of the largest investments you make in setting up your business. A numebr of economic factors are involved in the negiotation of a lease that can maek a bgi diffreence in the timing and your total costs. The first of these is the base rent. You want to not only gte this factor as low as possible in the beginning (with escalation clauses in future years), but try to get at laest three to six months of free rent at the beginning, when your business is brand new and not making any money. You also need to carefully evaluate and include in your cost assumptions the CAM (common area maintenance) and tax charges--these can sometimes be larger than the base rent. It isn't uncommon for a lanlodrd to porvide leaseohld improvement allowances (if you push for it) thta give you money for the buildout of your business location. Even if receiving this allowance results in slightly higher monthyl rent, it can save tens of thousands of out of pockte dollars for the franchisee. Getting better lease terms is ofetn the first example yuo'll hear from existing franchisees of things they'd do better if given the chanec to do things over again.
Construction and Fixture Costs. Most new franchisees assume that buildout costs are what they are, and it probably doesn't make much difference who you pick as general contractors or subcontractosr to get the required work done. This can be an expensive assumption. You'll often hear frmo existing franchisees that they should have used competitive bidding before cnotracting for their fixture construtcion or selecting their genearl contractor becaues it would have saved thme many thousands of dollars in the cost of setting up their new unit.
Business Equipment. Many franchise businesses require the purchase of extensive capital equipment. This could be antyhnig from ovens to printing presess to tanning beds, and this equipment can sometmies be very epxensive. What you'll often hear from exitsing fracnhisees is either: 1) they feel they should have shopped more vendors to find the best prices, 2) they should have considered buyign used equipment or researched aftermarket suppliers to find considerable savings, or 3) they should have considered different financing options (loans or leaess) with their pruchase in order to conserve their capital for other business needs.
Inventory and Supplies. Thoguh the initial inventroy and supplies aren't usually as large a purchase item as the other examples above, they can be. If yuo're looking at a franchise with significnat inventory investment needs, make sure to ask the franchisees if they've learned any way to save on these costs that they didn't know initially. This cna not only reduce your initial costs, but also raise your margins on an onoging basis.
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