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Buying a franchise is a great way to start your own business.  You enjoy instant name recognition by providing customers access to well-known regional or national brands.  You have the backing of a major corporation and the ability to put into practice a variety of tried-and-true business methods.  Finally, any difficulties you encounter are likely issues that have befallen other franchisees in the system.  You have a ready source of advisors who have “seen it all” and will help you come up with sensible solutions.

Because buying a franchise is an expensive proposition, you want to do plenty of research up front to ensure you are making the right move and choosing the best possible operation.  Here are ten tips to keep in mind when doing research on the best franchise for you.

1. Understand the Market
Once you have decided which field to enter – maybe it’s fast food, or auto repair, or a daycare center – learn as much as you can about the industry.  Pick up some trade journals, check out the Web sites of the major corporate players – especially the franchisor you want to buy from – and visit with other franchisees to see what their experiences have been.

2. Carefully Review All Written Material
Any U.S. company that offers a franchise for sale is required to provide full-disclosure documents.  You will learn a great deal about how the company does business with its franchisees, as well as gain an understanding of the corporate structure and whether or not they have been through litigation or bankruptcy.

3. Ask a Professional for Advice
Because legal professionals have crafted many of the aforementioned documents, you may have difficulty understanding all the information they contain.  An attorney, an accountant, or some other business advisor can help you wade through the legalese and better comprehend what is being presented.

4. Protect your Investment
Franchisors are in the business to spread the brand as widely as possible.  It is important to understand their expectations for expansion.  How much of a territory are you buying when you purchase their franchise?  Do they have company-owned stores that may compete directly with your franchise store?  Knowing these details will help you make an informed buying decision.

5. Look Closely at Fees
Every parent company charges some kind of franchise fee to get you started in the business.  There will also be expenditures for supplies, inventory, accounting systems, equipment, and countless other elements that help you open for business.  Many operations also require you to pay an annual royalty – frequently calculated as a percentage of gross sales – so make sure to add that in when figuring out your cost to do business.

6. Calculate your Profit Point
Nearly every business loses money at the beginning, since it takes a while to establish a clientele and also pay back all those start-up costs.  Franchisors know how long it takes for the average franchise to start making money, as they provide income projections as part of the disclosure process.  If the revenue stream they quote seems to make sense – checking in with other business owners can really pay off here – you’re probably ok.

7. Getting Along with the Corporate Office
Not every business relationship is smooth sailing all the time.  One of the drawbacks to buying a franchise, especially if you are a free spirit, is that there are plenty of rules to follow.  This could be anything from which posters to display to what kind of bathroom cleaner you need to use.  By knowing how well the parent company resolves conflicts with its franchisees, and what written policies are in place to do so, you will know what to expect ahead of time.

8. Advertising and Marketing Benefits
Some of the money you pay to the franchisor goes toward advertising and marketing campaigns.  This can create much better exposure that you might achieve on your own, but you will want to know how much it actually benefits your particular location.  Also, are you able to employ your own ads or marketing ideas and, if so, do you need permission from the home office?

9. Gauging Success Versus Failure
No matter how great an opportunity, there are businesses that do fail.  Find out how many franchises have gone out of business, and over what time frame.  An unusual growth spurt in the number of company-owned stores could be a red flag, since many corporations assume ownership of failed franchises rather than closing the location altogether.

10. Understand your Exit Strategy
Very few people buy a business with the expectation they will run it until the day they die.  Identify your personal long-term financial goals and match them against the franchise you are thinking about buying.  What restrictions, if any, does the parent company place when franchisees wish to sell the business?

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