Buying a Franchise: The Complete Guide on What to Look For
Before buying a franchise, leave no stone unturned. Find out every detail you can about a franchisor before making the choice to purchase. Not sure what to look for, we’re glad you’re here.
Do the Math
Knowing what the initial investment is to buy a franchise should go without saying. You absolutely need to know what it costs to open a location in the system you’re researching. You should also understand what’s included in those initial startup costs.
Look at the Territory
Understand where you’ll be planting your business. How big of a territory is it? How densely populated? The size of the territory doesn’t always matter, but the number of people living there does. These are your potential customers. If a franchisor cannot tell you the area you’ll be developing in – you may want to reconsider their opportunity.
Understand any Limitations
The franchisor can place limitations on their franchisees. This is how they’re able to keep their brand intact. If you’re someone who considers themselves to be more of a “free spirit,” you may want to reconsider franchising altogether. However, if you’re someone who appreciates process, review any restricted covenants carefully before buying a franchise.
Review Litigation History
Any and all lawsuits should be reviewed, but you’ll want to really pay attention to any cases between the franchisor and franchisee. Consider the size of the franchise system. A larger organization may have hundreds of cases that only make up a small percent of their locations. A smaller system, however, could have less cases but they could amount to a larger piece of their overall organization.
Renewal and Acquisition Rights
As a potential franchisee, you should familiarize yourself with the renewal rights you’ll have as an owner, but you should also review the franchisor’s rights to buy back units.
To avoid headaches down the road, understand your renewal rights upfront. Most franchisors do give owners the right to renew at the end of their agreement, but there may be requirements. Make sure you are completely aware of any criteria for renewal prior to signing an agreement.
Talk to Existing Franchisees
Get on the phone, visit in person, email, whatever it takes for you to get in contact with an actual franchisee from the system you’re researching. The Validation step in the franchise process is crucial when it comes time to make a decision. A lot of times franchisees can disclose details franchisors otherwise couldn’t say. Have a list of questions ready – if you’re speaking to more than one owner, make sure you ask the same questions to each one. This allows for better cross comparison between answers.
Buying a Franchise? We’ve Got You Covered
You work hard for your money, so the decision to own a business is a big deal. We want to make the process of buying a franchise easier for you. We’ll guide you through all of the above steps and more to ensure you make the best choice.
We offer a free consultation to get to know you and understand your needs about business ownership. We do the research, give you options and get you in front of the right people. Consider us your trained intermediaries.
We’re here when you’re ready.