Franchising gives you the support of a large company with a proven business model, but success also depends on your decisions. There are many common mistakes when opening a new franchise location and being aware is the first step to avoiding them.
For a product or service to be successful, it must have a large enough customer base. However, the business opportunity is only viable if you can make a profit when delivering the product or service. Even working with an established franchise, many factors can make success difficult.
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In this article we will discuss 4 common mistakes when starting a franchise and useful recommendations to avoid them. As with any business, you need to carefully analyze your options before making any major decisions.
Mistake #1 – Choosing a bad location for your franchise
Regardless of the product or service offered by a franchise, you must reach target customers to earn revenue. For example, a home supply franchise will likely be successful near a populated neighborhood, but will struggle in a location surrounded by warehouses and industrial buildings.
The commercial real estate sector is registering a high number of vacancies, which is a consequence of the prolonged confinements due to COVID-19. There are many vacant commercial spaces to choose from, but this is only an advantage if you can find a suitable location for your franchise. The cheapest commercial space is not necessarily the best, especially if it is far from your customers.
Mistake #2 – Not paying early attention to MEP design
A franchise will provide operating manuals and technical specifications, and you will need the right facilities to meet these requirements. Regardless of the franchise selected, you will deal with equipment and processes that use inputs such as electricity, gas and water. To successfully replicate a business model, you need MEP Facilities .
Getting caught up in visual and aesthetic aspects is easy during a commercial installation. However, the underlying facilities must also be suitable for the type of business. For example, you can expect to use a lot of gas for cooking in a fast food franchise and large amounts of water in a laundry franchise. If any of the required facilities are undersized, you will experience delays and additional expenses.
Mistake #3 – Financing your franchise with unfavorable loan conditions
Starting a franchise can represent a considerable investment and franchisees typically take out loans to cover the initial costs. However, an unfavorable loan can interfere with success, even if your new franchise has many customers. When choosing between different financing options, pay attention to the following conditions:
- An interest rate that is very high.
- The repayment period is very short.
The impact of high interest rates is evident: a greater portion of your sales is used to cover debts and your profit margin is reduced. However, a short repayment period can also affect cash flow, even if the interest rate is low. To pay off a loan in less time, individual payments must be larger.
You should always make a financial projection before selecting a loan to finance a franchise opportunity. MEP engineers can help you save energy and water by reducing your operating costs.
Mistake #4 – Choosing a franchise without analyzing other options
There are important differences between franchises, even if they offer similar products or services. Before signing a contract with a franchise, you should compare your options. For example, the commercial space you choose may meet the needs of a specific franchise, or there may be a brand that faces less competition in your area.
When starting a franchise, don't settle for the first option. Some brands may offer competitive advantages, increasing your chances of success. Furthermore, consider that each company has an organizational culture and you must replicate it when opening a new location.
Conclusion
A franchise gives you access to a proven business model, but this alone does not guarantee success. Starting a franchise involves many decisions, covering aspects such as site selection, engineering and financing. Also, remember that many franchises may offer the same product or service, and the first one you contact is not necessarily the best option.
When starting a franchise, there will be technical requirements to be met regardless of the product or service. Professional MEP engineers can help you adapt a commercial space according to franchise requirements, getting the project approved and built without delays.
