Buying a franchise is a big decision—and one that you’ll want to do your research on before you commit. Here are some things to consider before buying franchises: You should carefully consider if purchasing a franchise is the appropriate business move for you before starting. Like every opportunity, franchising has benefits and drawbacks. Here are some things to think about:
Pros
- You can operate inside an already-existing company framework.
- Your operational principles and brand are already well-known.
- There is already a client base for the franchise.
- The franchise’s corporate headquarters often directs the overall marketing strategy.
- Before you start your franchise, corporate headquarters will train you.
Cons
- You’ll need to put up money upfront. There are criteria for available money and/or net worth for many franchisors.
- The lack of freedom in the company might be oppressive for certain entrepreneurs.
- You’ll always have to provide the franchisor with money in the form of franchise fees.
Determining whether your idea is viable
In addition to the research you did on the franchise itself, you’ll want to check out the competition. Are there others in your area? How are they doing? What would make yours better than theirs? Do people go to them often? Where do they come from and why? Once you have an idea of what’s going on in your market space, take it one step further: if someone was going to open a business that did exactly what yours does—but cheaper or better—would anyone notice?
The answer should be no. If it’s yes, then congratulations! Your idea has legs and is ripe for franchising—and now it’s time for some due diligence.
Finding the right franchise business to buy
You’ll want to make sure that the business you choose is a good match with your skills, personality and financial situation. You should also consider where it’s located, as well as what kind of lifestyle it will allow you to have. For example, if you’re going to be working long hours or traveling frequently as part of running the business, then this may not be the right fit for you or your family.
Get finances in order
It’s important to have your finances in order before purchasing a franchise. That includes checking your credit score and making sure you can afford the monthly payments, if not for just one month, then for many years. If you’re buying a franchise, you’ll need to have a business plan ready and be able to show that you have enough money saved up for a down payment. You also need to make sure that there are no outstanding debts or other financial issues on your record—a good credit score is essential!
Evaluating franchises that are already on the market
Before you start your research, ask yourself:
- What is the franchise’s reputation? How long has it been in business and how many locations does it have? Do its owners treat their employees well, or are they known for mistreating staff members or being dishonest with customers. Does the franchisor have a good reputation in the community, or are there complaints from other franchises about how they’re treated by their corporate headquarters.
- What do other franchisees think about this brand? You can look up reviews on Yelp! or other consumer review websites to see what others say about their experience working with this business model. If there aren’t any reviews yet, contact some who have recently bought into the system—the more recent ones might be more willing to talk than those who have been through everything already.
Checking out your competition
Before you dive into the world of franchising, it’s important to do your research. First, you should check out the competition. What are they doing well? How could they be doing better?
Remember that every franchise has its own unique set of advantages and disadvantages — so finding a niche isn’t just about comparing yourself with other franchises. You have an entire industry of competitors, too! Be sure to consider all facets of the business when determining where you fit in with regard to both what makes sense for your company and what will keep customers coming back for more (and paying!).
Meeting current franchisees and asking questions
It’s important to meet with current franchisees and ask them questions. This will help you find out what it’s like to run the business on a daily basis and how much support you’ll receive from the franchisor. You can ask about their experience, training they received, relationship with the franchisor, support they get from the franchisor, profits they make and future of the franchise.
Visiting your potential location or locations
Whether you’re looking at a perspective franchise business or any other type of business opportunity, location is often the most important factor. You want to be sure that the location fits with your requirements and will help you achieve your goals as a franchisee.
Before you make an offer on a franchise, visit the site during different times of day and weekdays and weekends. You want to see how busy it gets (and whether there’s room for growth). Are there any holidays or special events that may affect traffic? How far away are there competitors? What kind of traffic do they get?
Researching laws and regulations
You’ve thought about the type of franchise you want to buy. Now it’s time to research the laws and regulations that apply to your new business, including zoning laws and other restrictions.
If you’re opening a restaurant or other food establishment, look into health and safety regulations for your area. If you’re offering products or services that require special permits, consider getting licensed before making an offer on a franchise opportunity.
It’s also important that you understand tax and legal regulations for your industry as well as environmental regulations, which might affect how your business operates or what types of products or materials it uses in its day-to-day operations (for example: packaging).
Take into account using expert assistance
You might not require an accountant, insurance agent, or lawyer if you are familiar with accounting, feel comfortable reading a balance sheet, have previously insured a firm, and have drafted legal documents. However, with some self-interest, attorney Josh Brown advises that before you sign a franchise deal, you should have a lawyer and other specialists assess your financial situation and how it will be impacted by the franchise agreement. “If you’re purchasing a business that costs between $150,000 and $1 million, you need an attorney to look at the paperwork and explain you what they imply,” was his sales pitch for his services. To assist the majority of his franchisee clients in getting started, he claims to charge “a few thousand dollars.”
A franchise is a proven business model that can be replicated
Franchising has made it easy for people to start a business of their own; it gives them the opportunity to run a successful business without having to come up with an original idea or product. Some franchises also require you to pay royalties once your store has been established and has reached certain sales goals.
Make sure you’ve done your research before buying a franchise. This means understanding both the market and the business model behind what you want to buy into.
