My husband and I have been looking to buy a fast-food franchise for some time. The problem is that we cannot afford the large upfront fee that most established franchises want. We recently found a franchise that we really like, and the upfront fee is only $10,000. The problem is that the franchise is only five years old. We would be only the third franchise outlet, and the only one in our state. What are some of the questions we should be asking this franchise so we can make sure we’re not throwing our money away?”
The main reason for buying a franchise, as opposed to starting a business from scratch, is that the odds of failure are much lower in a franchise. The franchise model has been proven successful in dozens if not hundreds of locations around the country; the franchise name has instant brand recognition throughout the country; the franchise has experienced management who will train and coach you in the operation of the business; and the franchise will support you during the tough times.
Simply put, a franchise with only three outlets in one small area cannot give you that. If the franchise owners are honest, they will admit that upfront. Both you and the franchise are taking a risk — a big one — that this will work.
First, look at the cost of getting this franchise up and running. Since this is a fast-food franchise, your total upfront costs will be a lot more than $10,000. If you look at the Franchise Disclosure Document (FDD) for this franchise, look at Item 7, “Estimated Initial Investment,” which breaks down the franchise’s estimates of what you will have to spend to get your restaurant up and running. Do not be surprised if the total cash outlay is in the $100,000-to-$150,000 range. This article continues here.