WHAT TO DO BEFORE BUYING A FRANCHISE

Buying a franchise is often a much easier way of starting out in business for yourself than starting a new business from scratch, or even buying out someone else’s business.

However, like everything in life, it has advantages and disadvantages that need to be looked at carefully. Before you begin researching any decision about buying a franchise let’s look at some of them.

The Advantages

All of the following things that have already been done for you.

• Use of a trademark or brand, no slow reputation to build up. Instant recognition.
• Support from the franchisor, they obviously want you to succeed.
• Already set up and proven systems that work.
• Training by the franchisor.
• Free market research, this is vital, and can be costly to do yourself.
• Prepares you for competition based on their experience.
• Buying and service economies of scale.
• National and International advertising and marketing.
• Lessons the risk of business ownership.

The Disadvantages

Things that you have to be aware of before buying a franchise:-

• You don’t own your own brand.
• You are restricted to imposed rules that have to be followed or else!
• You cannot be an independent thinker.
• Some franchises can be very expensive.

Like everything else, let’s start with you. You need to be convinced that owning a franchise is right for you.

Buying a franchise can be a good step towards being your own boss; it trains you for a business life. The step from employee to business owner can be made easier by first owning a franchise with all its support. Down the line you can move on to starting your own business with a lot more skill and confidence.

However, remember what we mentioned under disadvantages, free thinkers who hate rules and regulations, don’t like interference and need to have complete control over all aspects of their business lives,are not good candidates for franchises.

Looking at your work experience, past jobs, skills and interests together with the amount of money you have or can raise to invest, all helps you decide.

Taking all the above into consideration, you have now decided that possibly a franchise life is right for you. So onto choosing the right franchise:-

Choosing a franchise

There are thousands of franchise companies in the USA, with thousands more in Europe and elsewhere in the world, so the choice is unlimited.

• Don’t be in a rush when thinking of buying a franchise and don’t limit yourself to looking at just the franchisors in the food or service industries that you think you will like. Keep an open mind and look at all the industries that contain franchises.

You can investigate franchises on the Internet, use a franchise broker or visit franchise trade shows, but look at them all; you might just be able to get in on the ground floor with some new ready to take off idea.

• Once you have completed your research, you will now have a list of possible franchises that look interesting to you and need further investigation. Now is the time to contact the franchisors and ask for information on their businesses.
• Check out the information supplied from the franchisor by
  1. Viewing their web site.
  2. Read anything that they have sent you.
  3. Watch any videos that you have been sent.
  4. If they call you, let them know what you are wanting and where.
  5. Are they friendly, professional, and willing to answer all you questions?
  6. Reading their UFOC.

Follow this up by checking online for any newspaper or magazine articles about them. Is the opinion of the company good? The information is there, so before buying a franchise you just have to find it and check it out. Here you can check who are in the top 500 franchises.

In the United States, the Federal Trade Commission (FTC) has available free information on the FTC Franchise and Business Opportunity Rule. This is a must to read in your investigation of franchise opportunities.

• Now to a most important document, that being the company Uniform Franchise Offering Circular (UFOC). By law, in the United States, this circular must be made available to all intended purchasers of a franchise.

This circular contains information on the company, franchise costs, royalties and fees. It will inform you of any litigation pending against the company. On top of this, details of the brand, trademark, products, joint party obligations, locations and addresses of franchise holders, details of opened and closed franchises, capital required is shown. Are openings of new franchises greater than closings? Or does the rate of closings look too high?

This really is a gold mine of information and a must to read and absorb.

Beware however of any claims by the company of profits to be made. Check these out independently. Have your accountant and lawyer read this as well.After all this you should have a pretty good idea of who you like and who you don’t.

• Now the really important check, speak to a sample of existing franchise holders.

  Pick your own list of people to interview from the list of all existing franchise holders supplied in the UFOC.

  Most franchise holders will be only too pleased to help; they have all been through it themselves. Try and pick franchisers to interview that are not too close to where you want to start your own franchise, nobody likes competition next door! Visit them and ask all the questions you have not yet had answered.

  Sound them out; are they happy with the franchisor? Do they have any conflicts? What are the practicalities of the business? Would you be happy doing the same? What are the profits like and do they compensate for the work required?

  Check out all the possible franchises in the industries that you are interested in, this will go towards helping you make your final choice.

• Before you make your final decision as to buying a franchise. let the franchisor know that you are now close to a final decision and wish to attend one of their open or discovery days.

Here you will meet the home office people and get to understand how the franchise works from both your points of view.

You can judge their people and business and they will also be doing the same about you. Any good franchisor will only want potentially good people holding their franchise, so try and impress.

These days, held by most franchisors, are very worthwhile, so don’t miss them.

• Up to now you have made your choice based on logically following the steps needed to assess all the facts, you have listened and learnt but there is one more thing to do before buying a franchise, try your hand at the business!

Doing will be the final decider, so arrange with the franchisor to spend time, at least 6 – 10 days, with an existing franchise holder. This will allow you to see and feel what your life will be like in the business. If you can’t decide between two different franchises, work in both and then decide.

You will probably have to work for free but you will learn how the franchise operates in practice and this practice will lead to your final decision! After all the hard work in getting here, you will now know that you have made the right decision. Buying a franchise will have a huge effect on your future life, so get it right!

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