HAVING ENOUGH CAPITAL FOR YOUR NEW FRANCHISE

Mistake Number 7 Prospective Franchisees Make in Purchasing a Franchise

Failure to talk with enough existing franchise owners

Maybe it is just about being lazy, but this is an important part of the investigation process. When you allow a franchise salesperson to take you around to introduce you to owners you eliminate objectivity. The franchise owner is not going to knock the franchisor in front of a company representative. Make the rounds by yourself and telephone out-of-state owners. Keep notes and discuss them with the franchisor. Get the franchisor's input too. This will save you a lot of time and hassle. Current franchisees have the most real-world knowledge in what the state of the franchise is currently. They should be used as one of your top resources in evaluating a franchisor.

This may seem redundant. All of your efforts will go for naught if you fall short on working capital. There's absolutely no way a business can sustain itself when the demands for operating capital exceed the supply. I would recommend a contingency fund be established with half again as much working capital as the budgeted amount. Murphy's Law is as good as a reason as any to consider it seriously.

Here are some real situations that caused a great deal of distress for a few franchisees:

- Construction delays, legal problems, and the weather all held up the opening of a franchised retail operation for six months beyond the scheduled completion date.

- A speciality food operation was delayed six months because the specifications for a serving counter were wrong.

- A contractor failed to complete an application for curb cuts, and the Department of Transportation held up a franchisee's opening for six months.

- A Midwestern franchisee relocated to Florida to open a fast food restaurant. Unfortunately, he had to wait four months before the unit was ready for occupancy.

Who suffers financially? The franchisee. He's without a source of income and all he can do is wait- and wait- while the meter continues to run. It's not a very happy thought.