Purchasing a franchise is a popular way to start a new business. Franchising is a great way to expand a business, so when it’s done well, both the franchisor and the franchisees can profit from being in business together. A contract between the two needs to be thoroughly assessed, and the franchisee needs to get legal counsel before rushing in and signing it.
All businesses including franchises carry risks. For example, there are obligations to meet and penalties for not doing so.
There’s also the initial and ongoing payments to the franchisor, so that’s a liability before the new franchise has even opened its doors! So here are some tips to guide you when purchasing a franchise.
1. Do your Research & Due Diligence
Fools rush in where angels fear to tread, you must have heard of it; it was first written by Alexander Pope way back in 1711.
Today we’re all in a hurry, and we want instant success. Buying a franchise is no guarantee of that, so it pays to heed even one of the earliest sayings that basically warns against taking on what more experienced people leave alone.
Therefore, take your time and and thoroughly analyze the business, its brand reputation, what it offers, and if it appeals to you.
Don’t be easily impressed with what you see in their advertising & marketing. It’s a good thing to like,, but that’s not your due diligence.
How To Learn About The Franchise
- Speak and ideally meet other franchisees. What have been their challenges with the business and how it operates?
- Contact business clients and seek to learn about their experiences.
- Delve deeper into the franchisor and the business. Are they growing? Profitable? What is their debt history? Do they have any pending lawsuits?
The answers to these questions should provide confidence that the risks you take with a franchise are worthwhile.
You can begin by carefully reviewing the Franchise Disclosure Document.
2. Consult an Attorney
The franchise paperwork can be pretty complicated. Therefore, you need a reasonable franchise attorney who’ll shed some light on the legal issues surrounding the purchase of a franchise. Let them advise you accordingly before signing any legally binding documents.
3. Consider a Formal Business Structure
A formal business structure helps you draw the line between your assets and the franchisors. For instance, you are better placed to approach the franchisor as an LLC than a sole proprietor. The former allows you to cut better deals. In addition, a formal structure might offer perks, such as relieving you of elaborate taxation duties.
4. Location, Location, Location
Location is everything in any kind of business. You need to select a location where your target audience is mainly present. A good way of knowing this is by researching the traffic patterns and parking spaces if it’s in a town. Understand what brings people to the area, and more finely graded, the street, and maybe even the specific section of the road.
Also, check for potential competition. If there are rivaling businesses within, that’s not necessarily negative; you’ll find a psychology to shopping that insists all competitors should be in the same area.
5. Focus on Service
When you purchase a franchise, you get the advantage of a ready-made market. In addition, the franchisor manages the marketing/advertising, albeit the fee will be divided among the franchisees. In saying that remember:
The whole is greater than the sum of its parts.
So with that advertising power, it is up to your franchise to convert inquiries into business. Offering exceptional customer service is a sure way of retaining clients and attracting referrals. So invest in staff training and, of course, lead by example.
The franchisor also has a role in the customer experience and, thus, brand reputation. Look for a franchise that ranks high e.g., Entrepreneur #14 Franchise 2018.
It’s not easy to be ranked well and especially with the abundance of franchise opportunities up for grabs.
Franchises primarily work exceptionally well,, so many brands have chosen it to grow their business from local to national and then global household names.
Of course, there are operating controls and restrictions to meet when your business is a franchise. But that’s the trade-off for a proven business model, with brand reputation, too…..when you choose the right franchise!