5 key things to consider when buying a franchise

Image by Alterio Felines from Pixabay

By Henry Brown

Buying a franchise is not something you can just jump right into, hoping for the best. It is usually a significant investment, not just in terms of your finances but also your time and effort. After buying a property and potentially starting your own business from scratch, there aren’t many things that will cost quite as much as buying a franchise, which is why it is so essential to make sure you take enough time to consider every aspect of what you are doing. Making a mistake at the start of the franchise process will have a potentially devastating impact on everything that follows.

There is no need to rush. There are thousands of different franchise opportunities, and although not all of them will be of interest to you, it’s wise to check out as many as you can to get an overall idea of cost, commitment, and the types of franchise available. Read on to find out just how to make sure you are doing the right thing so you can truly get the most out of your franchise dream.

The initial investment 

There will be a considerable upfront cost to pay in the vast majority of franchises, and this cost will vary from business opportunity to business opportunity. However, this cost is not the only thing you’ll need to think of when you first begin. You will also need to consider plenty of other costs on top of this one large payment, and what they are will depend on what your franchise investment is going to cover.

This is why it is so important to do your research. Yes, there might be a great seeming franchise opportunity that costs tens of thousands of dollars, and there might be another that costs hundreds of thousands of dollars. So what is the difference? Why is one so much more expensive than the other? It might be that the sectors are entirely different – a restaurant will cost more to open than a mobile mechanic, for example – but it could also be that the more expensive option gives you everything you need, whereas the less expensive one will require additional investment from you which you hadn’t factored into your budget.

Knowing the actual cost of whatever franchise you are thinking of buying into is crucial. Without this information, you might find that you simply can’t afford to run the business after all.

Ongoing costs 

Once you have bought and opened your franchise business, there will be ongoing costs to pay out, usually every month. The amount you’ll have to pay will be a percentage of the gross revenue for the month, and it’s a good idea to have a tally going at all times so you know exactly how much you’ll need to set aside for these costs.

When you are just starting out, the franchise costs will be the biggest bill you’ll need to pay, so it’s a good idea to cut costs in other ways if you can. You could choose to rent a Mac instead of buying one or employ people on a part-time basis (or even freelance) until you have a more regular income. If you don’t pay your franchise fees on time, every time, you’ll lose the business, so these have to be a priority.

The goods news is the franchise fees will often be used to give you additional training, to carry out marketing, and to give you the tools you need to run the business, so they should be seen as additional investments rather than a bill, but no matter how you look at them, they need to be paid.

Territory rights 

The majority of franchises will have a territory attached to them. This means that there will be no competition from the same franchise within a certain radius, and you essentially have a guaranteed area to work in. Of course, as with everything to do with your potential new business opportunity, you must check that this is the case before you part with any money. If another franchisee could ‘poach’ your territory and steal away your business, you could lose a large amount of money – money you had put into your budget.

Assuming the franchise you are keen to buy into does have specific territories available, which ones are free for you to sell in? It might be that someone else already has the franchise for your area, or there is another business very close to yours so the franchise owner won’t allow you to work where you live. You may then have to work further away from home, and that may not suit you.

Renewals 

You’ve decided on the franchise you want and it fits perfectly with your budget and work ethic. You’ve determined – and agreed on – the territory you’re working in. What’s next? Next will be checking what the initial term of your agreement is. When buying a franchise, you don’t pay your fee and then get to run your business for an unlimited amount of time. There will be an initial term during which you need to show the franchise owner that you can follow that particular franchise’s conditions.

If you can do this, you will then be able to renew your franchise. If not, the franchise will not be renewed. The last thing any hard working business owner is going to want is to build up a business over one, two, three, or more years only to find that the franchise isn’t renewed when the time comes and the initial term expires.

This is why one of the primary considerations you’ll need to give to starting a franchise is reading every single one of the terms and conditions. You have to know whether what you intend to do is possible and whether your efforts will be for naught if something doesn’t match up to what you said you would achieve.

Although nothing is ever guaranteed in business, you should be able to calculate some projections as to what you think you will be able to make in the first year, two years, five years, and beyond. Are those projections close to what the franchise owners want and need from you? If not, this may not be the franchise for you after all.

Support 

We’ve mentioned above that your franchise fees will usually go towards supporting you in your business. Yet it pays to check that this is the case and to know exactly what kind of support you’ll be getting for your money, especially if you’re paying a large percentage of anything you make to get that support.

The very least you can expect to receive is the use of the company’s systems. If you don’t even get this, it’s going to be very hard to run the business in the way that it’s meant to be run. After all, the beauty of owning a franchise as opposed to starting your own business is that the setup work has already been done, and you are buying into a business that is already successful. That success comes from its own unique set of systems, and without those, you may as well have just started from scratch as the only thing you’ll have going for you is the name which, with no systems in place, will be more of a curse than a blessing.

Conclusion 

The idea of buying a franchise is undoubtedly an exciting one, and it has a lot of advantages. If you have money to invest and you’re willing to work hard, plus you like the idea of being a business owner, a franchise will give you all of this without the need to start from the ground up.

However, due diligence is always going to be required. Not all franchises are created equal, and you may find that what appears to be a good deal costs you a lot more than you had bargained for.

______

Henry Brown is an online marketing executive. When he isn’t talking shop, he’s roaming the streets of London, uncovering the extra-ordinary in the ordinary.

Leave a Reply

The Self-Employment Survival Guide can help you succeed. Learn all about it here.

Self-Employment Survival Guide book cover