If you have ever wanted to run your own business, buying a franchise can be a great option. A franchise removes a lot of the guesswork that can come from building a business from scratch.
Plus, many important steps will already be in place for you, such as brand recognition and a well-established operational structure.
Here are eight things you should know about buying a franchise before making the investment:
1. Not all franchises are created equal
Make sure you are investing in the right franchise for you. Choose one that’s within your budget and aligns with your qualifications and personal interests.
You’ll also want to read reviews and articles to be sure the franchise has a good reputation and is financially healthy.
Blue MauMau is a good resource to find the latest news on the franchise industry.
2. Franchises come with fine print
A Franchise Disclosure Document (FDD) must be given to potential franchise buyers. The Federal Trade Commission (FTC) requires that the franchise company provide this document to you, and it’s important to read it carefully before buying.
The FDD provides prospective buyers with critical information about the organization, including competition, litigation history, financial history, current health and relevant costs.
Its purpose is to provide prospective buyers with all the information they need to make a sound decision about whether to buy a franchise.
3. Fellow franchisees can be helpful
Consult with owners in the same industry to learn more about their challenges and successes. Prepare for your meeting with questions such as these:
- What do you wish you had known before buying this franchise?
- Were there any costs you incurred that surprised you?
- How supportive have you found the parent company?
4. Your personality and skills may or may not jive
Conduct a self-analysis to determine if you are well-suited for a particular franchise. For instance, most franchises have lots of rules that limit what franchise owners can and can’t do.
If you tend to be someone who likes more autonomy, you may want to consider a more independent business endeavor.
You will also want to examine your management and hiring skills. If you think you might be lacking in these areas, you can take some classes and attend seminars to beef up those skills.
5. You may want to try before you buy
Working for the company might be the best way to get an insider view of the culture, and that will definitely help you decide if it’s a good fit for you.
By doing the work, you can learn firsthand how the business operates and treats its employees and customers. In fact, some franchises like Domino’s strongly prefer franchise owners who have worked for them previously.
6. Owning a franchise is hard work
Running a franchise, although lucrative, requires hard work, especially in the first couple of years. Know that you will spend a great deal of your own resources, including time and energy, on building your business.
Before you buy a franchise, do some research to find out how much time you might need to invest for your business to be successful. Some franchises, such as tax preparation companies, will require more of your time at certain times of the year.
7. Your current financial situation matters
Buying a franchise generally requires an upfront investment of a fee that could be anywhere from $20,000 to $50,000. That fee may not include the cost of renting or buying a building and equipment, insurance, or any required licenses.
In addition to the fee, you will want to have enough savings to cover at least six months of operating expenses. One of the primary reasons new businesses fail is because they run out of money. Make sure you have plenty of cash in reserve before making the investment.
8. An attorney is necessary
An attorney can help protect you legally as you navigate buying and opening your own franchise. They can make sure you are compliant with tax laws, clarify anything confusing in the FDD, and help you determine if you are in a good position to buy a franchise in the first place.
The bottom line
Buying and operating a franchise can be a rewarding and profitable endeavor — if you’ve done your homework. So follow these steps before taking the plunge, and you’ll be in a far better position to reap the benefits.
