People decide to buy a franchise for several reasons. Franchises offer an established brand name and relatively easy access into a specific industry. Many companies that sell franchises will also help the owner along the way by providing franchise related training, money, or clients. This gives the franchise owner an obvious advantage over the average small business owner who must work by themselves to establish their business, name, brand, and product.
Before buying into any franchise opportunity it is important to keep the following tips and suggestions in mind:
What exactly does the franchise sell? This is important to understand market research, geographical needs, and distributor requirements.
How much does it cost? Many times the franchise owner will have to finance his or her franchise purchase. The franchise owner must make sure that the investment is still affordable and can be managed. Even the most successful franchise takes some time to get off the ground, so make sure to leave enough money in savings to last a couple of months while the new franchise location is advertised.
What are the benefits of the franchise? Many small business owners do just fine without a national brand to support them. There are plenty of one room burger joints that are more successful than the local burger franchise because people just like their burgers better. So what is the point of purchasing a franchise? Many established companies may be able to also offer stock options, educational incentives, the opportunity for corporate advancement, retirement packages or legal support should the franchise owner ever be dragged into court. In these cases, a franchise owner has much more probability for success than the average small business owner. It is the responsibility of the entrepreneur to conduct a self audit of their own needs, allowable expenses, and expected returns to determine whether or not a franchise would be a sound investment.
Is the franchise opportunity legitimate? Unfortunately there have been instances in the past of unsuspecting investors buying franchise rights from a worthless company. The entrepreneur must research the company he or she wants to do business with to ensure that the company is as established as it says it is and is capable of providing the support that any franchise owner would expect.
Where are you going to set up shop? Many franchise opportunities provide assistance in leasing out a building for the franchise owner to use. Some franchises may even have a building already set up to accommodate such a business. The investor should study what kind of success he or she should expect from a certain area and should determine just how much assistance the franchise company offers. Remember that in the event that a franchise fails, the company sinks, or business just isn’t what it was supposed to be, the franchise owner will more often than not still be responsible for the remaining value on the lease.
Who will provide the employees? Will the franchise owner have full discretion over who is hired or will the company provide its own personnel. Some companies may require experienced managers to run a store for a certain amount of time before it can be determined that the franchise owner knows what he or she is doing. This may or may not be an important aspect for the franchise owner, but it is an important question to ask none the less.