Tips for Purchasing a Franchise

/Tips for Purchasing a Franchise

Tips for Purchasing a Franchise

 When you decide that self-employment or entrepreneurship is the best career path for you, there are two possibilities you can explore. One is to build a business from scratch, the other is to invest in and own a franchise business. Each has its pros and cons, but there is no denying the fact that  franchise opportunities give you quick entry into a self-owned business career. And if you’re looking for capital to grow your business, you can start here!

Buying a franchise versus setting up your own business

Before you can start a business, you must create a plan that ties together its vision, operational milestones and sales targets. Besides serving as a blueprint for organizing and running your business, the plan should also help you acquire investor funding. There is much legwork involved in building a business from the ground-up and the risk is significant. Unless you have the passion, drive, ability and patience to create something out of nothing – and keep at it – you’re better off exploring the franchise model.

When you buy into a franchise, you own a piece of a business that’s already generating revenue and profits. Banks and investors are more willing to give you a loan as you’re working with an established brand. Other advantages of being a franchisee are outlined below:

  • Your customers are already familiar with your brand. They trust your brand to deliver on their expectations, and every franchise outlet is an opportunity to satisfy these expectations. That means you don’t have to spend money on brand-building and marketing in the way necessary for your own start-up business.
  • As a licensed owner of a franchise, you control the business as if it were your own. While you’re required to follow the operating system set by the franchiser, other aspects of ownership, such as hiring and corporate culture, are determined by you.
  • Continuing from the point above, the franchiser’s out-of-the-box operating model makes it easy for you set up shop. If you don’t have a workable, innovative product or service idea, a franchise for sale is the logical alternative to explore.
  • One of the biggest decisions you will need to make when starting your own business is : should I get funding or go bootstrapped? As a franchisee, you have the advantage of being viewed favorably by lenders, so you can acquire financing without hassles. That’s not all; vendors and suppliers will also be more willing to extend credit to you.

A key benefit of the franchise model is the ability to get the product/service out to the market at an accelerated pace. Many franchisees are also in a good position to start generating cash flow and ROI quickly.

Finding the right franchise

The nuts and bolts

There is no lack of franchise opportunities, which may actually create a problem of plenty, and require you to do extensive research to settle on the right brand. The basics you need to take care of include:

  • How much cash (your own and/or borrowed) can you commit to the deal? What are your income expectations?
  • See if you want to enter an already crowded industry where the competition is pretty fierce. On the flip side, you also want to avoid buying a franchise from an industry in a promising stage or one that hasn’t quite taken off in a big way. Make sure you choose a proven market with potential.
  • If you want to make an absolutely safe choice, opt for a recognized brand with a solid track-record of performance, and a good reputation among current and past franchisees. Contact franchise owners for honest opinions to make an informed decision.
  • Naturally, the franchiser must have a manual of operations to assist you in running the business, but also allow sufficient flexibility to adapt to circumstances.

Do you feel an emotional connect to the brand?

When employees switch from their daily grind to the challenges of running their own business, they aspire to emotional rewards. This is possible only if the franchise owner has an emotional connect with the brand. Are you absolutely sure that you can be a brand champion and feel a sense of pride to be affiliated with the brand?

Consider the implications of running a franchise on your personal life and family. Do they support you unconditionally in your venture, and are you willing to invest the time and energy needed to make the business a success?

Happy and successful franchisees enjoy working with the brand they have chosen. Beyond quantitative metrics, these softer factors must be considered to experience satisfaction and find the motivation to give your all to the business.

Steps to buying a franchise

Set parameters and priorities to narrow down your list of franchise opportunities (as discussed above). These tips will help you in your search for that perfect brand for your needs and aspirations:

  • Attend a franchise show that can feature anywhere from a few dozen to hundreds of franchises. Engage with representatives and see whose offerings are most compatible with your requirements.
  • The International Franchise Association offers a free online directory of thousands of opportunities that you can filter using various criteria.
  • World Franchising Network is another online resource listing new, international franchises and minority-friendly franchises.
  • For franchise lists, circulars and other relevant data, check out FRANData. The company also offers an analytics service for a fee.

Delve into the details. Bona fide franchisers will file a franchise disclosure document (FDD), so do verify it. Estimate the potential cash flow, sales and profit for the franchise. Examine the start-up costs, ongoing business expenses, and the potential revenue. Also factor in the training offered by the brand.

 As discussed above, talk to franchisees to get a clear picture of the opportunity. It helps to create a checklist of questions; don’t hesitate to inquire about the support offered by the franchiser, the work-life balance afforded by the business, and any challenges/problems that franchisees have faced.

Interact with at least ten to twelves franchise outlets to get more data points and identify bias (if any). It is not possible to know everything about a franchise opportunity, but research and ground realities will be invaluable in identifying the brand that best meets your business dreams.



Looking for Business Financing?