What You Need to Know About Buying a Franchise

What You Need to Know About Buying a Franchise
  • Opening Intro -

    You have decided to leave the confines of the 8-to-5 work world or perhaps you have tired of your early retirement and want to take on life's next big challenge.

    Your quest for something better can be fulfilled in buying a business franchise, enabling you to get in on an opportunity you might otherwise not try.

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Owning a franchise provides business savvy people with a well proven path to business ownership. As a franchise owner you will receive much hand-holding along the way and you will need to follow certain corporate guidelines. If these two attributes are fine with you, then the following steps can help you identify, buy, launch and manage your operation.

Discovering What is Available

Clearly, you will have little interest in managing a beauty salon franchise if personal care and the related products they sell are not your thing. You want to first identify your area of interest and then target those franchises in that area. Be passionate about your business and the profits will follow.

It is important for prospective franchise owners to know the pros and cons of the trade. Among the pros are a business path that is clearly outlined and understandable. Among the cons is that your independence is restricted by the franchisor. If you must launch a business according to your personal desires, then franchising may not be right for you.

Find and Consider

Trade shows are one of the best places to find franchises for your consideration. For instance, if you are business aviation fan, then the annual National Business Aviation Association convention meeting is what you will want to attend. Look for local and regional shows that you can attend and speak with the vendors that set up shop at these shows.

You can find franchises by performing an Internet search or by picking up a copy of Franchise Times, a leading industry publication. Familiarize yourself with the franchise landscape to find the opportunities that might be right for you. Be thorough with your research!

Assemble Your Paperwork

You will need a lawyer to go over your franchise disclosure documents (FDDs) once you find franchises of interest to you. FDDs are complicated agreements, what must be provided to you before the sale of a franchise.

Every FDD will include a section about the franchise itself including parent and predecessor companies. It will also spell out how long the company has been in business, what special laws pertaining to it exist, the permits and licenses required, and list the costs for buying and maintaining the franchise.

Your FDD will list the company’s executives and their experience, its litigation history, its current and recent financial condition including possible bankruptcy filings, your initial fees, franchise fees and advertising costs, and an estimate laying out the initial cost of buying the franchise. Your attorney will discuss what your responsibilities will be and may seek to amend the franchise agreement, if possible. Typically, franchise agreements are set in stone, but your attorney may be able to obtain a financing angle that is favorable for you.

Seek Out Other Franchise Owners

Never purchase a franchise without seeking out current and former franchise owners. Your best bet here is to interview at least three to five owners, uncovering their experience in managing a franchise. The franchisor should provide referrals and will likely encourage you to contact these individuals.

Your understanding of a franchise can be furthered by spending time at an existing franchised shop. That means shadowing the current owner to gain an understanding for the business and its day-to-day operation. Spend one to two weeks on site and you should be able to gain an understanding of what is expected of you.

Explore Your Financing Options

It is now time to explore and weigh your financing options. With a business plan in hand, you should know how much your costs will be and the amount of funds needed to maintain your business.

Your franchisor will most likely offer financing options including carrying all or portion of your debt until it is paid off. Some arrangements hold off your initial loan payment until the first year is done, enabling you to build your business without worry about making your payments. Various financing schemes can cover your initial costs, the franchise fee, equipment and your operational costs. A combination of two or more costs can be covered. Check with your bank, credit union and other financing companies to discover additional franchise financing options.

Author Information

Andrew Ewing is a professional blogger that shares tips and advice about franchising topics. He writes for FranchiseExpo.com, a leading franchise directory.

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Categories: Small Business