New Franchisee Mishaps: Common Mistakes to Avoid

Franchise companies equip new franchisees with training programs, manuals, and other supporting guides to help them establish their businesses seamlessly. The challenge is that most franchise newbies are encouraged to learn end and implement many new things at once.

Since you have plenty on your plate, it’s tempting to make “logical” decisions within consulting the advisor. For example, should you expand your hydraulic hose replacement franchise into general business for construction a month after opening? Can you change your lease terms? What about construction and fixture costs?

Decisions take time. Before you jump on assumptions, it’s important to research and learn more about the following to avoid costly mistakes.

Construction and fixture costs.

Most new franchisees aren’t thorough with their build-out costs knowledge. Some assume that they can choose any general contractor or subcontractor — as long as they get the work done. This can be a costly assumption since competitive bidding for contractor selection can save you thousands of dollars. Instead of jumping on a potential contractor ASAP, know your options. Seek out recommendations or join competitive bidding for fixture construction.

Lease terms.

Most franchise businesses lease their spaces. The total cost associated with leasing (and with real estate, in general) is one of the largest investments you can make for your business. Consider the base rent. Prioritize getting this factor as low as possible in the beginning and consider adding escalation clauses for the future. Also, carefully evaluate your common area maintenance (CAM) costs and tax charges — both of which can be larger than their base rent.

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Supplies and inventory.

Initially, your inventory and supplies aren’t large purchase items. But if you are considering a franchise with a significant investment need for inventory, seek advice from your franchisor on how you can save on inventory costs. Doing so will reduce your initial spending, as well as raise your margins regularly.

Business equipment.

Most franchises require investing in equipment. This could be anything from printing presses to ovens and stoves, and this equipment can be pricey most of the time. Some of the common complaints franchisees express regarding business equipment purchase are: 1) they should have considered buying secondhand equipment, 2) they should have shopped more vendors to find the best prices, 3) they should have researched aftermarket suppliers for the best savings, or 4) they should have looked into different financing options (leases or loans) with their purchase.

Labor costs.

Labor is one of the largest ongoing expenses for almost all franchisees. Good franchisors will provide you with specific guidelines for how much you can pay for the positions you need. One of the most common mistakes new franchisees make paying their people too much or hiring too many people. It takes focus and discipline to stick to your financial plan in terms of labor.

Research before you decide — this is the secret to franchisee success. Also, ask questions frequently. The more you know about a potential franchise issue, the more informed your decision will be, and the farther away you will be from typical franchise mistakes.

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