5 Things to Do Before Buying a Franchise

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Buying a Franchise can really give you a heads up when starting your own business. You get the support of an established brand, the backing of professional advertising, and a good reputation with some franchises. Others may have little to no brand awareness and you will be risking that the franchise will take off. Even if they do, they may not be right for your area…or they may not have your best interests in mind. There are several things you need to do before you get into a franchise.

Here are 5 tips to help you on your way:

1) Research each Franchise Opportunity - What is your upfront cost going to be? Don’t just ask the company, research online, and ask other franchise owners. Make sure it’s exactly what the company is telling you. What kind of restrictions does the franchise put on you? How protected is your territory? Does the Franchise company make money selling franchises, or does your success impact them directly?

Do they have a vested interest in you doing well? These are all questions you should ask current franchise owners, as well as the franchise company. Find out how many of their franchises have failed in the first year, what the average profit margin is…etc. Know who you’re dealing with before you do business.

2) Research your Local Area - If you’re planning to open a coffee franchise, and you already have 5 Starbucks, 2 non-franchised coffee huts, and a Dunkin’ Donuts in your neighborhood…the market might already be a little crowded. Be aware of what is around you. Research the kind of establishments that have lasted in your local area and which have failed.

If you open a fast-food resteraunt in an area where people are health-conscience and other fast-food resteraunts have failed, you probably won’t have good odds of success.

3) Analyze your life - Are you really ready for this? Do you really want to work in that Franchise every day for the foreseeable future? Do you have the financial backing to make it through some tough times if you have trouble early on? Is your place in life going to support an ongoing commitment? If you are banking on your wife being half of your labor, do you plan on having kids in the next year? Think about what your life plans are and make sure it meshes with your franchise/business plans.

I realize that you can’t plan for everything, but keep in mind, owning your own business is a little bit easier to close than owning a Franchise. A franchise has certain commitments from you the fanchisee so it is more difficult to get out of a franchise without some additional costs. With a non-franchise you won’t have as many obstacles to closing.

4) Research your Lender - Can you trust your Lender? If you’re borrowing money from family to get this started - will you be ruining a family relationship if this falls through? If you’re using a local bank or other lending institution - do they have the financial backing to see you through in case you need to come back for more funds?

5) Plan an Exit Strategy - You need to have a worst case scenario exit strategy at the very least. If things don’t go well - can you sell the franchise? Can you sell it to anyone, or does the potential buyer have to be approved by the company? What happens if you have to shut down due to low sales?

These are just a few of the things you need to plan for, and be on the lookout for when preparing to buy into a franchise. There are a lot of great franchise opportunities out there, you just need to make sure that the one you’re interested in is right for you.