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For many people, starting a business is the American dream. It seems to promise freedom and wealth such as many have never had before. However, not everyone has the experience or knowledge necessary to start a business from scratch. Nor do most people want to take on the risks of such a venture. If that’s the case for you, buying a franchise might be a good startup option.
RELATED ARTICLE: A CLEAR PATH TO BUYING INTO A FRANCHISE BUSINESS
What Is a Franchise, Exactly?
A franchise is a business that’s part of a chain. A franchisee, which would be you in this case, pays a fee for the right to open a business under a brand name. Thereafter, you would continue to pay ongoing royalties to operate your franchise. In this way, you get to start a business that’s already well-known. What’s more, when you’re buying a franchise, you’ll get support from the franchisor to help you succeed.
Buying a franchise is a good way to start a business if you have little experience and don’t know where to begin. The setup is already in place. Plus, you’ll have support during the beginning stages.
“The ever-present risk of business failure is reduced,” explains an article from Entrepreneur. “When the business program has already proved to be successful in the marketplace, the use of an established trademark saves the business owner the cost of creating and advertising a name that customers will recognize. And the advantages of group advertising and purchasing make operations more profitable. In addition, ongoing training creates an instant operational expertise that would otherwise need to be acquired through trial and error.”
There are also benefits of natural expansion if you think you might eventually like to own multiple stores. However, you shouldn’t dive into buying a franchise without understanding what you’re getting into first.
Here are a few things you should know about owning a franchise.
1. Choose Your Franchise
You don’t need to have a passion for the company you’re looking to franchise. However, you should enjoy the work. You’ll be spending a lot of time on this business. You might even spend more time working than you do at your current job. Choosing a franchise that you’ll enjoy will make things easier.
Furthermore, you should choose a franchise that you know will be profitable. Most franchisors send you a packet with information on profits and operation. Keep in mind that franchisors are trying to make a sale. Therefore, they may only show you the best parts at first. Ask to see a full list of profits and losses. Then form your own conclusions about the potential success of a business.
Franchises come in many different types. So don’t just choose the first brand name that comes to mind. There are typical restaurant or grocery store chains like McDonald’s or HEB. There are also unique franchises like Discovery Map, a company that creates maps and guides. Explore your options before making a final decision.
It’s difficult to compare franchises side by side. That’s because each has different requirements, rules, profit potential, and structure. However, you can make a list of pros and cons. This will help you choose the franchise you believe will be most beneficial to you.
2. Meet Franchise Requirements
Franchisors won’t sell to just anyone. They’ll screen franchisees to be sure they’re capable and willing to put forth the work to succeed. Research their requirements to make sure it’s something you’re ready for.
“Before buying a franchise, one of the most important questions to ask yourself is, ‘Do I have the right personality to be a franchisee?’ People are all different, and so are franchises,” says Tim Portesy. Portesy is CEO of the global franchise dealer MVF Expositions. He told Entrepreneur, “[O]ne of the worst mistakes you can make is buying a franchise when you are not suited to be a franchisee, or compatible with the business.”
When you’ve decided you’re ready for the business, understand what the franchisor will expect of you. Every franchise will have different requirements. Some will require that applicants have a business degree. Others will ask that you go through an extensive training on running a business the way franchisors would like.
Franchises are also under the jurisdiction of the Federal Trade Commission (FTC). Therefore, they have rules and regulations you’ll need to follow. Your state or city might have additional rules or laws that apply as well. These specific requirements should be itemized in your franchise disclosure document before you sign.
3. Review the Agreement Before Buying a Franchise
Once you’ve made your choice, there will be plenty of interviews, paperwork, and training to help you get started. You’ll also need franchise funding to support your startup. It’s all part of starting a new business. But at least you’ll have the guidance and support of experienced franchisors along the way.
Before you close the deal, however, always read the franchise agreement carefully. You have to take at least 14 days between the time you receive your agreement and the time you can legally sign it and make the purchase. Be sure to use that time wisely and study the agreement. After you’ve signed your contract, you’re locked into those terms, and a franchise contract is not easy to break.
“Note the promises made by the franchisor during your meetings and see if they are outlined in the contract,” warns Benilyn Fomoso-Suralta of FitSmallBusiness. “For instance, if the franchisor promised to provide legal support in the event of a lawsuit, ensure that this is clearly outlined in the contract. The same goes for rules on suppliers, pricing, transfer of ownership, protection of territory, royalty fees, hiring of staff, training, and so on.”
Fomoso-Suralta also explains the importance of negotiating your contract to meet expectations. You won’t get everything you ask for. However, if the franchisor made verbal promises before drawing up the contract, make sure those promises are in the terms.
A Final Word
Buying a franchise provides excellent opportunities to run your own business and rake in steady profits under a successful name. However, don’t go into it without a clear vision. Just remember that owning a franchise does not remove risk from starting a business. Therefore, knowing all you can ahead of time will help you succeed.