Things to Consider Before Buying a Franchise
Investing in a franchise can be an exciting, life-changing step. It’s an opportunity to become your own boss, gain financial independence and find work that you are truly passionate about. But, before you dive in, be sure to do your due diligence.
What to Consider Before Buying a Franchise
Make Sure Your Family is On Board
Owning a franchise—or a business of any kind—is truly a family affair. Considering that some franchisees put their entire life’s savings into the business, you can see why family members should be part of the decision-making process. Not only could a franchise investment impact the family financially, but it can also impact the family dynamic. Franchise business owners often put in long hours in the first year. A long, honest discussion about the pros and cons of this decision is essential for potential family bliss. Items to discuss: can we afford to do this? How much can we afford to lose? Will some family members be involved in the operation of the business? If so, what are our individual roles and responsibilities? These are critical questions to consider.
Count Your Cash
Owning a franchise can be an expensive proposition. Having liquid cash on hand is essential for the first year or so before the business becomes profitable. There are many fees that franchisees are responsible for: initial fees, royalty fees, leases, payroll, and whatever else the franchisor outlines in the Franchise Disclosure Document (FDD). It is important to understand all the financial obligations before you sign the franchise agreement.
Reach Out to Other Franchisees
A great way to know if a particular franchise is for you is to ask other franchisees what it’s like. They have been there and can answer questions you may have. You can ask: Is being a franchise owner what you thought it would be? Are there any unforeseen circumstances you’ve run into since owning a franchise and how did you overcome them? What are some of the positive aspects of owning the business? With first-hand knowledge, they can give you a behind-the-scenes look at franchise ownership.
Do Some Soul Searching
It is important to look within yourself and ask if you’re investing in a franchise for the right reasons. Do you truly want to be a business owner? Are you willing to ride through the tough times? Will you get out of bed every day excited to run your business? Are you comfortable leading a team and employing others? These are just some of the questions to ask yourself.
Test the Product
If you really want to know what a franchise is like, there’s no better way than to visit the location or test out the product. It’s easy with brick-and-mortar brands. Go in, try the workout or sample the food. With service-based franchises, you can call for services. Have your carpet cleaned or your house painted. Take note of the customer experience. Would you be proud of owning that business? If not, maybe you should look elsewhere.
Understand What You’re Getting Into
Being a franchisee isn’t for the faint of heart. You’re responsible for all the financials for the business and the fees charged by the franchisor. You hire the staff, order the inventory, deal with the complaints or praises of the public, and much more. It is a lot to handle and can be overwhelming. Are you up for the challenge?
Talk to a Franchise Consultant
A franchise consultant can help you decide if franchise ownership is for you. If it is, they can help you identify a franchise that best suits your interests, skillset and investment level and guide you through the entire process until you sign the franchise agreement.
Come Up with an Exit Strategy
All good things come to an end, even franchises. What is your endgame? Will you leave your business to your children or try to sell it? Believe it or not, the best time to come up with an exit strategy is before you open for business.
Consult With Franchise Experts
Seek guidance from professionals such as franchise attorneys, funding experts and accountants. It cannot be overstated how important it is for you to fully understand what is in the agreement between you and the franchisor.
Do Your Due Diligence
Always remember to do your own research before going into any business venture. Look around your area and see if the business you are considering is in-demand and doesn’t have a lot of competition for you going in. Look online for industry events and tradeshows. Read franchise books and magazines. Find out the latest franchise news. Investing in a franchise is a big decision but can be a great one if you are prepared and armed with information.