Succeeding at owning a franchise is every bit as much about preparation as it is about successful execution of your business plan. There’s generally very little room for error as you start a franchise, so it requires that you know what you’re doing and where you’re heading from day one.
That means research is crucial, but where do you start? Here are six things that you need to know before you buy a franchise; with them in mind, it should set you on the path to success with your new business venture.
1. Know How to Get the Best Financing
Most people who buy into franchises are not doing it entirely with their own money. Chances are that they will need a franchise loan to get into the business. The type of financing that you get may dictate whether you are successful because you will have repayment costs every month to go along with your other operating expenses.
There are many financing opportunities that are available to you when you want to buy a franchise. The key is to do your research and legwork ahead of time so you can get right down to business when it comes to selecting the right offer for you. A company like Franchise Direct offers a wide variety of businesses to consider franchising from, which will help you to choose something that makes financial sense and also puts you in an industry that you’d enjoy.
2. Read Your Franchise Agreement Very Closely
The franchise agreement is the document that governs your contractual relationship with the franchisor. If you get involved in a court fight with the franchisor at any point, the judge will look at the exact language of the franchise agreement to see the exact terms of your deal. There are government rules about your franchise agreement, so the company will need to make complete disclosure.
It is critical that you study the document and read it over many times. The worst possible thing is when there are either hidden terms in the agreement or things that you just do not know that you only find out after you are in business.
The best thing to do is to have an attorney read over the franchise agreement before you sign it. While you may not be in a position to negotiate the terms of the deal, you at least know any pitfalls ahead of time and will not end up surprised by an unknown term of the agreement.
3. Know Your Exact Costs
The cost to buy a franchise is only one of the things that you will need to pay for at the outset. The capital investment for a franchise also involves a number of startup costs that you must have the money for in the beginning.
Companies will generally tell you upfront the amount of money that you will need to get started in addition to the franchise costs. However, there may also be other hidden costs of which you are not aware. This is why you need to invest a large amount of time asking questions about your costs and working on budgeting.
Just because a company tells you that it costs you a certain amount to start your franchise does not mean that is ultimately what you end up paying. Drill down closely at every way that you need to spend money and pay the franchisor before you sign.
4. The Time Commitment Involved
You may be trying to invest in franchises as a side hustle while keeping your regular job. Alternatively, you could plan on quitting your job and working solely on your franchise. If your plan is the former, you should make sure that you have the ability to run a franchise while doing something else.
The last thing that you want is to spend the money on the franchise, including all the
startup costs, and find yourself without the time to run it. Some franchises need the full attention of the owner/operator and cannot succeed without it. Take the time to research the actual operation of the franchise to know what is expected of the owner in terms of time commitment. If the opportunity is a full-time job, plan for that ahead of time.
5. Know Whether You Are Suited to Run a Business
Some people have the necessary skills to be an entrepreneur while others are better suited to working for someone else. You should have an objective and honest conversation with yourself before you take the leap to know whether you are one of the people who can be their own boss and succeed.
As a safeguard, you should have a conversation with some people who know you the best and are willing to give you their honest opinion. Ask probing questions and be willing to accept something that you do not want to hear.
Before owning a franchise, you need to have a complete understanding of your strengths and weaknesses insofar as they can affect your success as a businessperson. You must understand if you have any blindspots that can come back to haunt you when you are running your own business. Even if these do not keep you out of business, you should be aware of your weaknesses before you take on such a massive financial undertaking.
6. Research What Others Are Saying
When you sign a franchise agreement, you are making a very large investment in your franchisor. In a large sense, you are expressing that you trust them with your financial future. It is critical to know the company with which you are going into business.
Of course, every company is going to tell you that their franchise is rock solid. However, you need to also look at objective reviews written by real people who have owned the same franchise that you are considering buying. You should also study other objective metrics such as the rate of defaults on SBA loans used to bur certain franchises. If many are borrowing money to buy a particular franchise and end up defaulting, it is an indication that something is wrong with the franchise.