When buying a franchise, keep in mind that almost every franchise concept involves some kind of required purchases to run the business such as equipment, cleaning products, uniforms, yogurt, drinks, etc. that are essential to the specific franchise model. To maintain the quality of the services provided and brand consistency, most franchisors require those items to be purchased through preferred vendors. Good franchisors use group buying leverage with those vendors to benefit their franchisees and themselves. When it comes to supplies and buying a franchise, here are things to consider and questions to ask about purchases required by franchisors.
Questions to Ask About Supplies and Buying a Franchise
- Ease of Buying – Does the franchisor have a user friendly online buying portal that makes it easy to shop for and track purchases? What customer service standards are in place for preferred vendors? What is your recourse if there is a dispute? Are you guaranteed that all items are in stock? What quality control processes are in place? Again, I would ask a lot of questions when validating with current franchisees.
- Franchisor Rebates – You need to get comfortable with the idea that preferred suppliers are going to provide rebates to the franchisor for things you purchase through them. These rebates are an industry standard. Qualifying, negotiating and maintaining preferred vendor programs cost money and these rebates fund the program.
The key here is: are the rebates reasonable and do they still allow me to get a volume discount benefit? In other words, do the supplies cost the same or more than the retail price I can get on my own? Is buying a franchise a good decision here?
There a good franchisors and greedy franchisors. The rebate percentages are disclosed in the Franchise Disclosure Document. Good franchisors get a reasonable rebate, but still pass along big savings to their franchisees. During the buying process you will get to talk with existing franchisees. Ask them their thoughts on what they pay for supplies. Are the prices reasonable? Could you do better on your own? In a good system, you get the buying power of the franchise network without the hassle of shopping for supplies.
The group buying leverage applied and shared by a franchisor says a lot about the company’s organization and business acumen, as well as its moral compass. You want a franchisor that looks out for itself AND for those in the franchise network. Take the emotion out and ask the tough questions here before buying a franchise.
As always, give me your thoughts!