What You Need To Know When Buying a Franchise

Are you one of many who dream about being your own boss, but aren’t sure you’re prepared to start your business from ground zero? If you are, then franchising may be just the right thing for you. It’s a fantastic alternative if you’re a businessperson without much experience or resources, and could use strategic advice when starting up your business. When you buy a franchise, you buy a piece of the franchisor’s existing business, one that preferably has already established itself as a reputable brand.

A franchise is a commercial and legal association between two mutually-trusting parties; one in possession of a trade name, a trademark or brand and the other interested in using the identification to start or run a business. A franchise agreement sets out the terms and methods for these two parties to conduct business.

The franchisor hands you a sound business plan, the internal structure of running the business, along with a service or product which you can sell as well as training support, management advice, location analysis and effective marketing strategies. All you need to do is shell out the upfront and ongoing fee for the entitlement of running a business with their brand. The terms and conditions between the two parties are pre-discussed and you enter a commercial marriage.

The best way to decide if entering a franchise agreement is best for you is to study the advantages and disadvantages that come along with this business decision. Do your due diligence. If you’re not carefully you could end up losing a lot of money.

The Advantages

Recognition – There are many advantages to become a franchisor. One of the biggest is that you’re running a business that is already recognized by consumers. This eliminates the need for you to start from scratch and try to market or sell your business.

Financing -Because the franchisor has given you a proven business plan makes it highly likely that a bank will approve your loan request.

Guidance – Rather than risk learning to run your business through daily experiences, the guidance that comes from a franchisor helps eliminate wastage monetarily and also smoothens the overall running of the business.

Better buying power - Buying supplies as a collective entity helps keep your costs low and therefore increases your profit margin.

The Disadvantages

The cost – Aside from your preliminary costing, a bulk of your expense will go to buying the franchise. The cost usually varies from four to five figures. In addition, there are also the monthly royalty fees. These are commonly paid out from your profits depending on a pre-agreed percentage. Make sure you study the entire fee structure of a franchise before buying into one.

Your hands are tied – There is limited freedom when it comes to implementing your own ideas into the running of the business. You have to follow a set manual, and if for some reason you fail to hit the targets or divert from the internal system you risk losing your franchise along with everything you invested into it.

It’s never really yours – Although running a franchise is similar to running your own business, it will never really be yours to call your own, and will still be very much like working for someone else.

Watch the leader – Make sure you invest in a franchise that has proven to be reliable and long-lasting. The last thing you want is for your franchisor to make the wrong financial or legal decisions that could very well compromise their business and in turn yours.

About Author: Brice Leconte have been an entrepreneur all my life with success in all types of businesses. For the last 15 years I have mostly been a real estate entrepreneur, developing and investing in land development projects. When the real estate market slowed down in 2006, I decided to start looking at the franchise industry, as this was a business sector that had been on my bucket list for a long time.