How to Buy a Franchise That is Right for You
If you have recently decided that buying a franchise is the right business decision for you, there are a number of elements worthy of consideration. With thousands of franchise businesses available in hundreds of different fields, the possibilities are practically endless. Narrowing the field to make an informed and practical decision is vital; otherwise you could end buying a franchise business that is a bad fit for your personality or skill level, or it could prove to be the wrong business model at the wrong time.
In order to understand how to buy a franchise, there are many factors to weigh. The following information provides some ideas to consider and will hopefully make your decision to buy a franchise business an easier one.
Examine Yourself and Your Personality
Take the time to set goals and understand what you hope to accomplish by having your own business. By buying a franchise, you are buying into a set system of rules and regulations. If you do well within a structured environment, a franchise business could be your ideal fit. If, however, you don’t follow instructions all that well, a franchise may not be your best self-employment option.
Review Your Finances
Every franchise comes with up-front expenditures – a franchise fee, start-up costs for equipment and such – as well as the ongoing cost of doing business. A careful evaluation of your financial condition will quickly let you know what sort of franchise business is right for you. Many are available at bargain prices when compared to the cost of starting from scratch. But you also need to have enough reserve capital on hand to get you through the opening months, as your business works to find its market and grow its clientele.
Understand What Your Money Buys
The franchise fee you pay, plus all the extra costs it takes to open a franchise business, will vary from one company to the next. Every deal is different. Examine carefully the details in the material each franchisor is required to provide. Match that against a similar opportunity in the same field, and then see who gives the best value for the money.
Research the Parent Company
Not all franchises are created equal. Some may have incomplete business models, while others have a contentious relationship with their franchisees. Perhaps the company declared bankruptcy a while back or is engaged in ongoing litigation. How successful are their franchisees? The research you do ahead of time will save you plenty of headaches later on.
Determine Your Profit Potential
How long will it take for you to break even and then move into the black? This is perhaps the most important factor of all to consider. The concept of ROI (return on investment) is the lifeblood of a business owner. By talking to other franchisees in the system, you will gain a better understanding of the sales cycle, and the potential for profit. Your goal is to reach the point where you put money into your account every month rather than taking it out – positive versus negative cash flow.
Evaluate the Risk Factor
Companies that are just breaking out their franchise model are generally at greater risk for failure – they have no track record of success to fall back on. However, the opportunity to own the first “this” or “that” easily sets you apart from the crowd. Just imagine if you had purchased the very first Subway franchise or Grease Monkey franchise. These companies were pioneers of their trade and made their early adopters very, very rich. If you are a risk-taker with deep financial pockets, buying a franchise business that is just starting out could be your ticket to a tremendous financial future.