How Singaporeans can do franchising wisely

In the information age today, many employees are increasingly becoming self-employed. After working in their parent company for a period of time, they may strike out a business either on their own or with a group of friends.

For some, becoming an entrepreneur can be a daunting task. The risks and financial burden can potentially tarnish any drive of venturing a business.

To mitigate these risks, increasingly, first time entrepreneurs may turn to buying franchise as their first business strategy. A seemingly belief that banking on established brand can potentially fast track their success in business.

For example, in Singapore, one can see international food chain such as Subway entered the local shore through selling of franchise, which maybe snapped up by local entrepreneurs.

Big players such as Wing Tai have also brought in the Yoshinoya, a famous food chain, through franchise model into Singapore.

With such a wealth of choices for these entrepreneurs, choosing a right franchise to embark on requires extensive research. The “shopping” journey for a franchise can be a mentally tiring task for many to handle.

Therefore, it is required that one has a plan of steps in sourcing for a right franchise. While there are many consideration points, I have enclosed eight major points one should consider.

Self-assessment

Before embarking onto any commitment, it is logical for individual to do a self-reflection. An entrepreneur must understand his strengths and weaknesses.

For example, if one is adept in culinary skills, it is unwise for him to invest in a consulting franchise even if the offer is overwhelming attractive and convincing to succeed. We must know our personal qualities that can potentially fit into the business.

Likewise, starting a franchise/business requires start-up costs. Essentially, I am referring to fixed and variable costs. Purchasing a franchisee would commonly require the franchisee to pay for a one-time franchisee fee. After starting the business, the variable cost is often considered as the operating cost of running the business.

One important thought to consider is “ Am I willingly and able to go into debt for the business?”. Yes, franchisors can promise you great success in a short period in time. However, that can be a selling tactic.

On an individual basis, one has to prepare sufficient operating fund and the road to break-even can happen only after a few years.

Meeting with prospective franchisor

You would have considered a few brands on mind. At this stage, you could request for some information from the franchisors. If possible, it is not uncommon to travel to the prospective company to take a look and feel. Communicate and talk to the management about your thought and plan.

From the franchisors point of view, they would also want the right fit of people to purchase their franchisee. Hence, when you are assessing them, they are likely to be doing a pre-assessment of you too.

Often, the management people can give you a deeper and more insight understanding of their businesses and that can potentially mould your ideas and understanding that is invaluable in making your final decision in the later stage.

More importantly, we should go with an open mind. Often, after visiting the company, you might be deterred and possibly stun by the complexity of the business. There is a good chance that at this stage, you are on the verge of giving up. This is a good sign.

After all, franchisor wants to partner with someone who has the perseverance and resilience to rise up against difficulty to achieve future success and you do not want to quit halfway, knowing that your start-up cost is gone.

Due diligence

At the end of the day, individual must do an intensive due diligence. The list can go a long way but two are critical: understanding the Franchise Disclosure Document (FDD) and if possible, talk to existing franchise owners.

The FDD is a crucial step in having an organized overview of the business. The content should give you a glimpse of their history and the support programs available by the franchisor.

For example, a standard FDD may contain the level of support given in the areas of marketing, operation, sales and human resource management.

Essentially, this is the essence of the proven model by the franchisor. On the monetary note, one has to take notes of the start-up costs, royalties and related fees involved.

A less travelled route by first time entrepreneurs is to talk to current franchisees. This is probably the most straightforward way to better understand if the promise laid in the FDD is delivered.

One can get a sense of the corporate support given and also aware of the limitation and difficulty in running the business. In short, you can do a reality check by speaking to the real people on the ground.

Choice - Your final decision

Probably after months of research, you may have finalized on the type of business that you are likely to fit and are comfortable to work on.

At this stage, you would have reviewed intensively of your choices and made an informed choice. It is therefore time to make a formal visit and make known of your interest to the respective franchisor.

The route to entrepreneurship is tiring. There are likely to have bumps along the way to be overcome.

However, if you are really passionate about something, the entrepreneur journey is definitely a rewarding and possibly life-opening experience.

Stay cool and enjoy the ride.