7 Questions to Ask Before You Buy into a National Franchise

 In Business, Business Operations, Case Study

It’s natural to assume that buying into a national franchise will big bucks along with coveted brand recognition. However, if that national brand’s requirements aren’t a fit for your organizational style or budget, the costs could far outweigh the benefits.

Overview

After just 18 months of flying a national brand flag, a hotel owner recently elected to return to independent status.  Why go back? The owner learned that the brand acquisition demands coupled with a substantial financial investment, didn’t yield the expected results.

First and foremost, the owner preferred local planning, direction and decision-making. However, the owner was willing to change with the expectation that the national chain affiliation would substantially improve service, increase awareness and enhance guest experience.

To get those promised results, though, the hotel owner needed to adhere to lofty franchise brand standards, upgrade and enhance individual guest rooms, purchase state-of-the-art information technology equipment, and increase training obligations for all employees.  Also, the company had to revise all signs, logos and promotional materials. After all the work was completed, the bottom line results still weren’t there, so the hotel owner called Solomon Bruce Consulting.

To find out what happened, we began an analysis for him (one that is best undertaken in advance of such an important investment decision).

7 Questions to Ask Before You Buy into a National Franchise

To assess the impact this type of investment could have on your business, there are several questions to consider:

  1. When and how will you see a return on this investment?
  2. What will be the net return on investment for becoming a national flag hotel?
  3. Is this investment going to positively affect your bottom line?
  4. Have you completed a financial analysis and projection of returns to ascertain the benefit of becoming a nationally franchised property?
  5. Is the investment in facility upgrades and personnel training costs worth the cost?
  6. Are there other, residual benefits (or detriments) to your business beyond the payback for this investment?
  7. Does this make sense for you at this time?

After performing our analysis, the hotel owner determined the business would be best suited as an independent operation, and the owner lowered the national hotel chain flag.

Our Advice

These questions are the same ones any owner should ask when considering making a large corporate investment.  Please undertake a solid analytical process before you commit. Big brands don’t automatically mean payoff.  You must carefully review each expense item. Know what to expect and when as far as your payback. And remember to think long range, not just today. Following the analysis, develop a thoughtful, carefully crafted strategic plan. Assure that capital budgeting actions always enhance and enrich return on investment.  Go slowly when spending company money. It will pay off in the long run.

Before writing a big check and grabbing a brand flag that you expect to make your business fly, do the work that underpins a good decision, so you can build on its momentum rather than have to go back to square one. If you determine that the investment isn’t a fit, it’s okay to take a pass.

Need help analyzing an opportunity? We’re here to help before you take the plunge. Contact us today.

 

Photo by Marten Bjork on Unsplash
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