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The Basics of Buying a Franchise

Interested in starting a business, but starting from scratch isn’t for you? Consider buying a franchise.

The biggest benefits are starting out with successful systems of operations and training, and pre-set daily routines. If this sounds like the way to go, there are some things you need to look into first. Figure out which industries with growth potential interest you. Once you’ve figured out your top three to five, look at your community, is there a niche that could be filled by one of these industries? Go from there.

Things to consider before buying in: research, research, research! Once you’ve found your niche start looking at franchises that interest you within it. Contact them and ask for information. Do not take the promotional materials at face value, however, do some of your own sleuthing. Read articles about them, ask your state’s consumer franchise regulators/authorities about the franchise, have they had any lawsuits or bankruptcies? All things you want to know ahead of time. You should also see if they’re registered with Dun & Bradstreet. If they are you can request a D&B Report, which will tell you about their finances. Better Business Bureau is also worth contacting.

I’ve done all the research and franchising is for me, now what? You want to obtain a copy of your franchise’s Franchise Disclosure Document. This document must be given to you ten days before any agreement is signed with the franchise. “The FDD contains an extensive description of the company, the investment amount and fees required, any litigation and/or bankruptcy history of the franchisor and its officers, the trademark you’ll be licensed to use, the products you’re required to purchase, the advertising program, and the contractual obligations of both franchisor and franchisee. It specifies how much working capital is required, equipment needs and ongoing royalties. It also contains a sample copy of the franchise agreement you’ll be asked to sign should you buy into the system, as well as three years’ worth of the franchisor’s audited financial statements” (Entrepreneur Staff, 2o15).

  • I’ve read the FDD, they seem legit, I’m good to go now, right? Not quite, in the FDD there is a list of all current and terminated franchisees. Does the terminated list look suspiciously lengthy? Red flag, you may want to call some of them and ask why they termination occurred. Things seem normal? Move on to step two, pick a few of the franchisees and go to their locations for interviews. Check out how their business is, what did and didn’t the franchise help with when they opened, are they enjoyable to work with? Entrepreneur suggests asking these questions:
      • Was the training the franchisor offered helpful in getting the business off the ground?
      • Is the franchisor responsive to your needs?
      • Tell me about a typical day.
      • Have there been problems you didn’t anticipate?
      • Has your experience proved that the investment and cost information in the FDD were realistic?
      • Is the business seasonal? If so, what do you do to make ends meet in the off-season?
      • Have sales and profits met your expectations? Tell me about the numbers in the business.
      • Are there expansion opportunities for additional franchise ownership in this system?
      • If you knew what you know now, would you make this investment again?” (2015)

Ideally, you should try and spend some time in one or more of the franchise locations. Spend a week working there, and see how it fits. Getting to know the ins and outs of the franchises will help you decide which is the one for you.

This post is a summary of : http://www.entrepreneur.com/article/240609


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