11 Critical Things to Grasp Before Purchasing a Franchise

Buy a Franchise?

Must know 11 vital points before you purchase a franchise

When you own a franchise, you can get into business for yourself and not by yourself. An owner of a franchise will operate by selling services or products that are established and those that have significant brand recognition.  Apart from the trademark, service, and product, a franchise also comprises a complete method of conducting the business-like operation manuals and marketing plan. Managing a franchise will increase the chances of being successful in your business since you will be leveraging a business model that is proven and benefits from the available customer base that can take years to grow using your idea.

Most people are known to make the mistake of thinking that franchises are a small business in a box and they do falsely believe that most of the franchises do have a much lower failure rate when compared to other types of companies which is never right. Just like the different types of businesses, up to 60% of franchises will most likely be out of business in the next two years.

Hence, if you do not have plans for purchasing a franchise, you will have to prepare yourself. While such business types are known to offer one with everything that you need to get started together with training yourself and your team, running them has never been easy.  You will have to obtain the right amount of cash reserve to get started, especially when you want to venture into the food franchise. For instance, you will need to have up to 2 million in liquidity for you to apply in becoming a franchisee of any significant food franchise like Qdoba Grill or McDonald’s. The majority of the franchises will be required to give a specific amount to help in the advertisement.

 Things to Consider Before Purchasing a Franchise

Putting aside some of the risks, purchasing a franchise can be an excellent way of owning your own business and enjoying all the perks that come with it. Provided you do it in a smart and calculated way. 

 1.      Ensure You Do Thorough Homework

You will have to educate yourself. It is essential that you know about the business and industry you want to get. Take your time and interview the franchisor thoroughly. In most cases, they will always introduce you to the individuals who will be of help when you want to sell a business.   Feel free to ask questions concerning the pre-opening support, construction, design, training, financing, site selection, license boundaries, and grand opening program.

 2.      Assess your strength and Style of Work

You need to ask yourself how you feel when you carry out the same task every time.  Are you on good terms with other people? What’s your feeling when you perform business-to-business sales?  If you have a negative attitude towards purchases, you will always have trouble managing any business. However, if you are not on good terms with other people, you will always require a partner to help you handle the business side. Ensure you are still honest with yourself concerning your weaknesses and strengths.  Choose approximately three individuals whom you trust and ask them about your weaknesses and strengths. It is advisable that you go for a business which you have some experience. Never buy a business franchise just because you like eating. Purchase a restaurant because you do have lots of experience in the management and servicing of food.

 3.      Check the Fees

Apart from the initial franchise fee, most franchise opportunities will always be forced to pay for advertising and royalties fees.  We also have the opening day expenses which occur when the headquarters need you to give away the free stuff and carry out special promotions. 

It is vital that Franchisees be very careful to balance the restrictions/ requirements with their capability of managing a business.  Having a system-wide scandal can make your franchise fail to perform well.

 4.      Search for the Dirt

Consider taking advantage of sites like Sean Kelly’s Unhappy Franchise and look for the negatives about the franchise you are about to buy. For instance, Kelly did run exposes on NY Bagel Cafe by listing down the high closure rate of the stores.

However, one store consultant Richard Taggert does disagree with a report by Kelly and instead says that the company only had some small closings in the past decade.

 5.      Ensure You Immediately Get Your Money

Starting a franchise and running it does involve vast sums of money, including the equipment cost and buy-in fee, fit-up construction and the location of the retail businesses, and upfront market costs.

You will require a minimum of one year operating with the capital before the business picks up not to mention the monies you will have used to help in building up the business. Even some of the most popular brands like Dunking required some time to pick on a new location.

 6.      Ensure you carefully read through the FDD Disclosure statement

The FDD, Franchise Disclosure Document refers to a document that offers information concerning the franchise system and the franchisor to the requirements of the franchise. No franchise is independent. Most franchisees are known to operate their businesses about the restrictions and procedures that have been set in the franchise agreement.  The limits do comprise of services and products offered the geographical boundary and pricing. The agreement also makes requirements on the total amount of working capital the franchise will require. The Franchise Disclosure Document is considered to be one of the most barriers for many people to becoming a franchise as they have no control over the person that can buy a franchise in their region.

 7.      Make use of the Franchise Lawyer

Not all business lawyers are in a position of negotiating a franchise agreement. You will require a professional. The Franchise license agreement refers to a contract that helps in describing the relationship between the franchisee and the franchisor, including the use of fees, trademarks, control, and support.

It is a written legal contract between the franchisee and the franchisor that informs each part on what they are required to do.

 8.      Keep Your Eyes on Franchise Consultants

The majority of the franchise consultants are known to be paid sale individuals for franchise owners. The consultants will always put on a tough sell to ensure you get signed to a franchise deal as fast as possible. It is because they will still receive some commission from the initial franchise fee. Always ask them to make their agreements clear before you sign so that they do not lie to you.

 9.      Franchise Work

It is essential that you always learn by doing. Before you sell a start-up or get into any business or purchase a franchise, it is crucial that you first consider working for one or search fund. After you have become an employee, you can see how things are working out for you and the amount of support you are getting from the franchisor. It can be compared to being an undercover boss, and it can quickly provide you with some valuable information. You need to work for a minimum of six months to get a real impression of how things work.

 10.  Seek Professional Support

As it had already been mentioned in hiring a franchise lawyer, it is also essential that you get an accountant to help you in running the numbers. You will always require a detailed analysis to help you understand what your cash outlays in a month.  Getting seasoned insurance can also be of great help.

 11.  Contact Other Franchisees

It is advisable that you reach out to other franchisees to help hear their story and see what pros and cons the business will encounter. One of the most important questions you will have to ask any franchise owner is the amount of support they will be able to get from the headquarters. You will also be interested in asking them if they will invest in the business again. It is vital that you target at least 12 franchises since most of the small business owners are very proud of them and will never admit if they did struggle financially.

Depending on the type of entrepreneurship through acquisition you go for, you will always invest between $150,000 and $1 million before you even start your business. Always do yourself a favor by trying to get any franchises that are not happy online before you commit yourself to any franchise agreement.

It is also essential for you to know if there is any discord on your franchisor. Always take advantage of the regional and national advertisement, training, operational assistance, operating procedures, management support, ongoing supervision, and access to bulk buying. Another valuable resource you will need to check before purchasing any franchise is the international Franchising Association guide.

Despite running a franchise being an excellent idea to help start your business, it is crucial you understand what you are about to get into, whom you are about to start it with, and your plans on how you will ensure it is successful.

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