Tips for Buying a Franchise

Have you always dreamed of working for yourself but are not sure where to begin when starting your own business? Many people have found that buying a franchise provides them with a lower-risk opportunity to sell familiar products and services, while learning the ins and outs of running a small business - such as how to use business finance software.

When you enter into a franchise agreement, you (the franchisee) are given the rights to market and distribute a trademarked product or service - and you often receive set-up assistance and ongoing support. In return, you pay various fees and royalties to the parent company.

Advantages of buying a franchise

A high chance of success. Since franchises are a tried and tested business concept, they are more likely than other start-ups to survive their first year of business. Still, remember that no business venture comes with a 100 percent guarantee of success.

Lots of support. The parent company will give you assistance to start up your new business - such as helping you find a location - as well as support down the road. You may receive all of the equipment, supplies, marketing materials and training information necessary to get the business up and running.

Name recognition. When you open a franchise, there are likely to be a number of potential customers who are already familiar with your product or service, which may mean you do not have to work as hard to gain their business.

Drawbacks of buying a franchise

Less creative control. Remember that as a franchisee you have signed a contract giving the parent company control over a number of aspects of your business. These may include the appearance of your outlet, the products or services offered, the location of your business, hours of operation and advertisements.

Costs. Starting a business is never cheap, but with a franchise you can expect to pay both an initial fee - which may be non-refundable - and continuing royalties as a percentage of your business' income. You can use business finance software to manage these costs.

Before you buy a franchise

List your objectives. Before you commit to buying a franchise, make sure you understand your short-term and long-term goals for the business. How much time and money are you willing to commit? Are you looking for a steady income or to expand your knowledge in a particular field? Are you going to be the manager or will you hire someone else to do it? Is this your main career or a side project? Are you open to expansion?

Read about franchising. There is a large amount of guidance available for people who are interested in buying a franchise. These include magazines, directors and informational brochures provided by accountants, lawyers, the Small Business Administration and banks.

Make a budget. Before committing to anything, make sure you have set out a reasonable budget for what you are willing to spend on starting your franchise. You can use business finance software to complete this task. Do you have savings, additional income or personal assets to rely on while you start up your business? Also think about how you will obtain financing for your business venture and how likely you will be to qualify for funding opportunities.

Assess your abilities. Think about what personal abilities, training, education and experience you have that can help you with your franchise. Have you ever owned or managed a business? Have you worked in this sector previously?

Do market research. Just as with any new business, prospective owners are advised to do sufficient research to find the right opportunity. Are the products or services offered in demand in your area? Is the demand likely to last? Who would be your competitors? Is the market in your area oversaturated?

Visit a franchise exposition. These events provide you an opportunity to do some comparison shopping among different franchise opportunities. Make sure you have done the initial research listed above so you can arrive ready to ask informed questions and get the most out of the experience.

Talk to people. Explore your possibilities by speaking with other franchise owners. Questions to ask franchisees include whether or not the opportunity delivered what was promised, how the business is doing, how much support the franchiser provided and whether training met their needs.

Assess the franchiser. How long have they been operating? How many outlets do they have? How much is the start-up fee and what percentage would you pay in royalties? What types of controls do they exercise? What support do they offer?

Resist making an impulse decision. Franchisers may offer you incentives to sign up with them, but it is wise to refrain from committing to a franchise while you are at an exposition. In particular, make sure you have examined the franchiser's disclosure document carefully - perhaps with the help of a lawyer or accountant - before signing on the dotted line.