How To Buy A Franchise: Everything You Need to Know
Do you want to know how to buy a franchise? There are several things that all potential franchisees must understand before diving in to this major investment. 3 min read
How to Buy a Franchise
Do you want to know how to buy a franchise? There are several things that all potential franchisees must understand before diving in to this major investment.
Give Yourself a Personality Test
Look at your personality. For instance, war veterans are often successful franchisees because of their acclimation for following rules and structure. Creative types that are more experimental may not be ideal franchise owners.
Franchisees are those that implement an already existing plan. They are not a creator, necessarily.
Study the Field
Check into all of the information that is publicly available to get the most information about what is needed to open a franchise. Franchisees are responsible for paying for advertising.
The maturity of the business will be determined by the size of the franchise. Look into the target market when doing research. You must also check your franchisor for exclusivity in an area. You need to know how many franchises are already present in your location.
Assess Your Strengths
With the help of friends and family, assess if your personality matches the franchise you are considering. Experience in the field in which the franchise operates is ideal.
Count Your Money
There are many more costs associated with owning a franchise than just the required fees and costs of equipment. In the beginning, you will need to pay for:
- Any net losses you may incur
The franchisor is required to tell you any extra money you will need under item No 7 of the Franchise Disclosure Document (FDD). According to the Federal Trade Commission, it can take up to a year for your business to make a profit. It is ideal to have additional money, such as six months in business expenses saved. You should also have one year of personal expenses saved before starting a franchise.
A certain amount of money in sales or a specific figure will be charged each month by the franchisor as a royalty fee. There are additional expenses related to the rent or purchase of land and buildings used to conduct business.
Your business will need equipment to begin, which you can obtain a bank loan for while using the equipment as collateral. You will need to buy any business signage offered by the franchise. Expect to know the amount of inventory you need to keep on hand and budget accordingly.
Keep in mind that some franchisors will offer financing services to you to assist with these costs. Your personal assets will serve as collateral.
Beware of Franchise Consultants
Be cautious of franchise consultants. They are paid salespeople whose goal it is to get you to sign a franchise deal as quickly as possible. They will then receive a commission for half of the franchise fee.
Don’t Believe the “Franchise Lie”
There is little to no truth that franchise will only fail 5 percent of the time. They actually fail much in the same way as any privately owned business. About two-thirds of businesses with employees will remain operational for two years. Of those businesses, many manage to stay in business for five years according to the Small Business Administration.
Dig for Dirt
When considering a franchise, visit websites such as Sean Kelly’s Unhappy Franchisee for any negative information you can find on a business you are interested in.
You can also contact the FTC and the Better Business Bureau to see if there are any current complaints on the franchisor. You May also want to speak to other franchisees in your location to see if there are customer complaints. This information can have an impact on your bottom line.
Talk to Franchisees
You can find the contact information for current franchisees in the FDDs. Ask about:
- Benefits and downfalls of the business
- Hidden costs
- Special experiences they have had throughout the franchise process
You may also want to see how the return on investment is for a franchise, as well as how much money was actually spent.
If you need help learning more about how to buy a franchise, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.