Ten Simple Steps to Buying a Franchise
If you're considering buying a franchise, there are several things you need to consider to ensure that youíre making the right choice. Here, we walk through a ten-step programme for franchise purchasing and provide you with all the information you need to make an informed decision.
1. Are you ready to become a franchisee?
Before you begin down the franchise road, it's important to consider whether you're suited to the role and whether you're in the position to make a new business work. Buying a franchise is a substantial commitment, and you must know whether you have the required skill set, determination, and drive to make it work, before you sign any legal documents. This requires a great deal of introspection and an honest appraisal of your abilities. Consider what youíll need to succeed in the role and make sure you have what it takes to own and manage a new business.
2. How will you finance your franchise?
Having concluded that you're well suited to the franchise model, the next step is to look at different ways in which you can finance your franchise acquisition. Different franchises will require various levels of investment and enforce different rules regarding how much of that investment can be funded by banks and other types of lender. Many will have established partnerships with lenders to facilitate financing and will be able to support you through the application process. However, prospective franchisees need to ensure that theyíre calculating their finances in the right way. Donít go off minimum investment figures and talk to existing franchisees about how much it took them to get their franchise unit off the ground. You want to be working to a realistic figure, not the enticingly low investment figure that franchises often use to attract potential franchisees.
3. Research the industry
If youíre going to be managing a business, you better have a good understanding of the industry in which youíll be operating. Without industry insight, itís easy to fall into avoidable pitfalls, get left behind by the competition, or misjudge business decisions. You need to be attuned to the latest developments in your industry, understand where itís potentially heading in the future, and can identify potential obstacles to growth. Look at industry publications, talk to other business owners, and do your research. If you enter an industry in which expansion opportunities are hard to come by or that youíre not well suited to, itís going to be hard to make a success of your franchise.
4. Identify your franchise opportunity
With your research, complete, you will have probably identified four or five franchises that you're considering working with. Now is the time to narrow this down and select the ideal business for you. Request as much information as you require from franchisors, talk to existing franchisees and actively seek out potential problems with each franchise. By the end of this process, you should have a better understanding of which franchise is right for you and which won't work.
5. Do your due diligence
Once youíve selected a franchise, get in touch, sign the non-disclosure agreement, and study the franchise business plan. This should give you a greater insight into how the franchise expects you to operate and whether their business model is likely to be profitable. The next step is doing your due diligence. This process should determine whether the franchise is financially viable and whether the investment risk is too high.
6. Meet the team
This is where the process begins to pick up pace and franchisees start to see rapid progress being made. Having established that the franchise is financially viable, it's time to meet your franchisor team and introduce yourself to the management team. Over the next few years, you'll be collaborating closely with these people, so it's essential that you feel as though you'll be able to develop a healthy working relationship with them. They should show interest in you, provide you with all the information you require, and remain communicative. If they donít do any of these things, it may be time to step back and consider whether you want to commit to working with this specific franchisor.
7. Take the leap
At this stage, youíve done everything you can to gather information as to whether the franchise is right for you. If you haven't spoken to existing franchisees, talked to your legal advisors about financing, and run your due diligence, do it. Once you make a legal commitment to the franchise, it's going to be very difficult to extricate yourself from the situation if things start going wrong. If all feels good and youíre happy with the franchisor, itís time to look at the franchise agreement.
8. Check out the franchise agreement
The franchise agreement sets out all the information youíll need to operate the franchise. It includes information relating to the franchise fee, trademark use, minimum operating targets, and both the franchisor's and franchisee's responsibilities to each other. It is essential that you have this looked over by a legal advisor that has experience of the franchising system.
9. Make the most of your training opportunities
After the franchise agreement comes the initial training period. This is a fantastic opportunity to pick up many of the core skills youíll require to run the franchise and to get a feel for what day to day business looks like. Take it seriously, turn up prepared, and make the most of it.
10. Launch your franchise
After all the waiting, you now have the chance to launch your very own franchise unit. While the franchisor will usually support you through this process, you are still personally responsible for ensuring youíre sufficiently prepared. The launch will set the tone for the rest of your franchise ownership, so put in the work to make it perfect!
As you can see, the road to becoming a franchisee is long and arduous. It requires patience, perseverance, and plenty of research. If you follow our ten-step programme and ensure that you donít jump into a franchise agreement without careful consideration, youíll be giving yourself a good chance of success.
The Editorial Team, Point Franchise ©
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