2015-08-12 13:00:00Am I Ready?English10 things to consider before buying a franchise. Benefits include working with an established business and brand.https://quickbooks.intuit.com/r/us_qrc/uploads/2015/08/2015_7_20-small-am-10_things_to_consider_when_buying_a_franchise.jpghttps://quickbooks.intuit.com/r/am-i-ready/10-things-to-consider-when-buying-a-franchise/10 Things To Consider When Buying A Franchise

Operating A Franchise Business

10 Things To Consider When Buying A Franchise

As an entrepreneur, you might opt to work with an established business and brand instead of selling your own goods or services. This is why franchises are popular with many business owners who are looking for an opportunity, but also want the backing and support of an established company.

But before you look to open the next McDonald’s or Subway, there are a few things to take into consideration. Below are ten different questions to consider when you’re thinking about buying a franchise.

1. Is There Consistent and Lasting Consumer Demand for the Product or Service?

Ongoing success depends on the longevity of the product or service sold by the franchise. You also want to evaluate things like product quality and inventory costs. Take stock of the competition too. Is there a lot of competition regionally? What about locally? Does your area already have the franchise you want, and is it successful?

2. Is There Enough of a Track Record to Prove the Business Model Is Successful?

Make sure that the franchisor’s business plan has been proven, and that they can support this claim with facts. It’s also important to examine the success of the franchise in your area. While smoothie shops are very popular in California and Florida, trying to open one in New York may not generate the same level of success.

3. What Are the Total Costs of the Franchise?

The franchisor should be able to give you a good idea of all the initial, upfront costs associated with purchasing the franchise, as well as forecast costs for the first one or two years. There are hidden costs as well that you’ll want to account for including:

  • Rent and utilities
  • Travel expenses to attend franchise training classes
  • Legal and accounting fees
  • Property/casualty or liability insurance

4. Can You Handle the Life of a Franchise Owner?

Franchise owners are typically hands-on, meaning they are involved in every aspect of the business. This includes everything from bookkeeping to inventory planning to customer service to cleaning the bathroom. Unlike entrepreneurs who sell their own products, franchise owners don’t normally have much variety in their day, which can be boring for some business people. Try to imagine doing the same jobs and tasks every day for two years. If that sounds like torture, owning a franchise may not be for you.

5. What Is the Ongoing Relationship – Both Financial and Professional – With the Franchisor?

By purchasing a franchise, you enter into a long-term relationship with the franchisor. Make sure you fully understand what the extent of that relationship is, including how the franchisor is compensated. You will normally pay a franchise fee and/or an on-going royalty. Have a clear understanding of what these fees cover and what, if anything, you can expect in return for your payments.

6. What Do Current Franchisees Have to Say About the Company?

It’s always a good idea to seek feedback from other franchisees. Use them as a sounding board and ask them all the questions you can think of. Keep in mind that the challenges other franchisees have may not be the same challenges you will face, but their experience of working with the parent company will more than likely mirror yours.

7. What Are the Legal Parameters of the Franchise Agreement?

Make sure you review the contract with an independent lawyer and that you’re comfortable with all of the language outlined therein. Is there anything that feels off to you or your lawyer or anything you weren’t expecting? If you feel pressure to sign before you’re ready this is also a red flag. Deciding to invest your own money into a franchise is a big deal and you should feel fully comfortable with your decision before committing to anything.

8. Do My Skills Fit the Franchise?

Make a list of all the skills you have, whether they are personal or professional. When shopping for the “right” franchise opportunity, consult this list often, and ask yourself if your skills align with the day-to-day requirements of the franchise. If you’re not good with people, but great with computers, then working in a job where you are constantly facing clients may not be the best choice.

Drill down your list of strengths and weaknesses, and ask others for their input. You want to be sure that you’re selecting a franchise that really speaks to your strengths.

9. What Are the Plans for Expansion or Growth?

The franchisor should have an expansion plan and should be willing to share it with you. The most important element to pay attention to is how much growth or expansion is planned for your immediate market. If the franchisor intends to really saturate your area, you may want to reevaluate purchasing a franchise. If possible, ask for exclusivity in your market to ensure that you don’t end up getting run out of business by another franchisee that happens to have a more convenient location.

Expansion and growth can also apply to product offerings. If the franchisor plans to introduce new products, will those products be made available to the franchises? Will they be marketed and sold under another brand name in your area? Depending on how large the franchisor is, these issues can be complex, so thoroughly review their plans and understand what options you’ll have as a franchisee.

10. How Much Support Is the Franchisor Willing or Able to Offer?

Take into account how much technical, marketing or advertising support the franchisor is willing to offer. Do they have a good handle on the market and market research? Do they conduct annual surveys that help them better understand their customers? Will they make that research available to the franchisees? Some franchisors take a very hands-off approach with their franchisees, so if you’re looking for a parent company that’s willing to provide fairly regular support, ask questions upfront to determine their level of involvement.

If you’re looking to be your own boss, purchasing a franchise might be the quickest way to fulfill that goal. However, as with any business venture, there is risk associated with it, so you should consider all of the questions listed above before agreeing to or investing in a franchise.

If you’re interested in buying a franchise, make sure to check out our article on how to finance purchasing a franchise from small business expert Rieva Lesonsky.

Chapter 2.
How To Finance Buying A New Franchise Business 2 min read
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Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.