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21 Dec 2015

purchasing-a-franchise

Hindsight has 20/20 vision, as they say, and there are some things that you may wish you had known when you first started in business that you know now. If you are just starting out in business, particularly if it’s a franchise, you can benefit from the experience of others and learn what are some of the most important questions to ask when you are considering purchasing a franchise. Experienced franchisee and founder of Franchisee Success Elizabeth Gillam shares the 5 questions she wishes she had asked when she was starting out. We’ve summarised her key insights below or you can read the full report here.

  1. What operating capital will I need to survive until I start making a profit?

It’s easy to underestimate just how much capital you’ll need when first starting out. Elizabeth says that she thought that she had budgeted for everything and even allowed for a wage for herself. In reality, there were many expenses such as insurance, gas and electricity bonds, local government licenses and bank set up fees which hadn’t been accounted for. The key takeaway is to ask other franchisees in the system about their cashflow over the first few months and find out what unexpected expenses they encountered.

  1. How long will it take to break even?

This will vary from franchise to franchise but it’s important to remember that, as with any new undertaking, it takes time and training to learn how to do it. Training also takes money so it’s important to allow for this when setting up your KPIs.

  1. How will I manage my cashflow?

Elizabeth suggests this is a question for your accountant or business adviser. Work with them to establish your budget so that you can ensure you have enough cash to cover your expenses until your business breaks even. She also recommends having a buffer of a few months extra cash, just in case.

  1. What financing options are available?

It’s a good idea to look at all of the different options that are available to purchase your business. The main ones are cash, equity or loans. You might even use a combination of these options. Again, it’s a good idea to get in the help of an expert such as your accountant or a finance broker.

  1. Is the franchisor financially strong?

Elizabeth says this is one of the most important questions yet is rarely asked. If the franchisor is struggling financially, they won’t be able to provide as much support for franchisees and could even be bought out resulting in a whole new operational regime.

The number and types of questions you ask will vary depending on the type of franchise you purchase and your level of business experience. Regardless of whether you’re a rookie or a pro, Elizabeth thinks these 5 questions should be among the first you ask when purchasing a franchise.


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