Things To Consider Before Buying A Franchise

Many will tell you that buying a franchise is a much safer option than starting your own business from scratch. This is because you already know that there is a wide market for the franchise, so it won't be difficult to attract customers. But there are still some risks involved in franchising, and you need to weigh them before considering taking the plunge.

Hidden Costs

You might have enough capital to buy the franchise, but do you have enough to cover the other - often unforeseen - expenses? As a general rule, it's always good to have more capital than you think you need.

One of the things you might not expect to spend so much on is marketing services for your franchise. Just because the franchise is a well-established brand doesn't mean you don't need to market it. You will need to use both digital and traditional marketing. Traditional marketing is the use of traditional media such as print, radio, and TV. This type of marketing tends to be limited to a certain region, which is perfect for franchising because it involves opening a new location.

You also need digital marketing because of the pervasiveness of digital media. Everyone spends much of their time on their devices, so having advertisements appear on social media feeds and website banners will help you get through to your market even more.

Another thing you'll have to pay for is ongoing fees such as royalty fees, which are paid either monthly or quarterly.

Can You Play By The Rules?

Not everyone is cut out to be a franchisee. If you like having things done your way, then perhaps you should start your own business instead. A key component of franchising's business model is rules. You have to be willing to go by someone else's playbook. This is what makes military veterans excellent franchisees - they're good at following the rules. If you can't follow the rules, you're meant for something else.

As a franchisee, you will have to abide by many rules - operating manuals are often hundreds of pages long. The rules include opening your business on the days and times listed in the agreement and offering only the agreed products and services. Additionally, franchisors often have rules about decorating and styling your location - for instance. You might be required to use all signages with the brand's logo and colors on them. You're also not allowed to franchise competitors for a certain period after leaving a franchise. And when you decide to sell the franchise, the franchisor must first approve of who you're selling it to.

Location, Location, Location

This is one of the most important things to consider. Your location could make or break a business. Make sure to inspect the area to see if you have enough of the target market in the area and come and go from other neighboring areas to keep your business afloat. Consumer demand might not be the same in the location you're planning to put up the franchise.

Is there enough foot traffic? Is your planned location close enough to other businesses and services to draw a good amount of foot traffic? Will you have enough space for parking? You should also check for nearby competitors.

Conduct Due Diligence

Don't be afraid to ask the franchisor if you can look at their books for financial reports, average success rate, and other data that you will need to make an informed decision. What kind of help will the franchisor offer you? This is especially important if it's your first time being a franchisee.

All that said, they might not tell you the whole truth, so make sure to research on your own. Talk to other franchisees about their experiences with the business and the franchisor. As much as possible, talk to more than one fellow franchisee.

Come To Your Meetings Prepared

We've already mentioned doing your research and calculating costs, but you also have to think about how you're going to get the franchisor to sign with you. Think about what you're bringing to the table. Make sure you've got a decent portfolio in business. Franchisors tend to look for those who have experience - though not necessarily in that specific industry. Show them that you have good knowledge of the brand and its market.

Franchises are about playing by the rules. This is part of what makes the business model work. But it's also something you need to be careful about. Make sure to conduct due diligence and read the fine print before signing an agreement. Apart from that, you also need to scout for a good location and determine whether you have enough funds to cover hidden costs such as royalty fees.