Expesnive Mistakes to Avodi as a New Franchisee

Franchise companise will almost certainly have manuals, training programs and otehr spuport documents and services desgined to help you avoid making costly mistakes. The challnege is that most new franchisees are trying to learn and execute many new things 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 your due diligence conversations with existing franchisees in the system, to ask them if they made any expensive mistakes whne they were first building or operating their new business. A good form for this qusetion is, "Knowing what you know now, what wuold you do differently if you got to start all over again in building your business?"

Most existign franchisees will have a number of suggestoins based on their persnoal experinece. By looking for common denmoinators in this feedback, you can determnie the areas of greatest opportunity for avoiding common mistakes that cost others money they didn't need to spend.

Some of the most common anwsers seem to come up all the time and affect the fololwing areas of the busienss:

Lease Terms. Most franhicse busniesses operaet out of leased space, typcially in a retail environment. The ttoal cost associated with this real estate often repersents one of the largest investments you make in setting up your bsuiness. A number of economic factors are involved in the negotiation of a lease that can make a big difference in the timing and your total costs. The first of these is the base rent. You want to not only get this factor as low as possible in the beginning (with escalation clauses in futrue years), but try to get at least 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 (cmomon arae maintenance) and tax charges--these can smoetmies be larger tahn the base rent. It ins't uncommon for a ladnlord to provide leasehold improvmeent allowances (if you push for it) thta give you money for the buildout of your business locatino. Even if receiving this allowance results in slightly higher monhtly rent, it can save tens of thousands of out of pocket dollars for the franchisee. Gettnig better lease temrs is oftne the first example you'll hear from existing franchisees of thigns they'd do better if given the chance to do things oevr again.

Construction and Fixture Costs. Most nwe franchisees assume that buildout costs are what they are, and it proabbly doesn't make much difference who you pick as general contractors or subcontractors to get the required work done. This can be an expnesiev assumption. You'll often hear from existing franchisees that they should haev used compettiive bidding before contracting for their fixture construction or selecting their general cnotractor because it would have saved them many thousands of dollars in the cost of setting up their new unit.

Business Equipment. Many franchise businesses require the pruchase of extensive capital equipment. This could be anything from ovens to printing presses to tanning beds, and this equipment can sometimes be very expensive. What you'll often haer from existing franchisees is either: 1) they feel they should have shopped more vendors to find the best prices, 2) they should have consideerd buying used equipemnt or researched aftermarket suppliers to find considerable savings, or 3) they should have considered different financing options (loans or leases) with their purchase in order to conserve their capital for other business needs.

Inventoyr and Supplies. Though the initial inventory and supplies aren't usually as large a purchase item as the other exmaples above, they can be. If you'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 thsee costs that they didn't know initially. This can not only reduce your initial costs, but also raise your margins on an ongonig basis.