6 Valuable Points to Know When Purchasing a Franchise

Business Franchise Street Sign

For many people, the franchise model is a good way to own a business without the hassles of actually starting a new company. The ability to work with an established company instead of trying to bring your own products to market has its advantages. Although you may be tempted to sign up with your favorite franchise operation because of the benefits, you need to take some things into consideration before taking the plunge.

Consumer Demand

Similar to any other business, the success of your new franchise will depend on the demand for your product or service. It is prudent to perform some market research to determine the long-term viability of the product. In addition, you should also keep in mind that products can perform differently in different markets.

A Positive Track Record

Before you seriously consider purchasing a franchise, you also need to make sure that the franchisor has a proven track record. A good way to determine if the franchise will be a good investment is to see how many successful franchises are in your area. If possible, talk to franchise owners about their success rate.

Total Cost of Ownership

Both franchises and traditional businesses incur some of the same operating costs, such as rent, insurance and legal fees. However, a franchisee must also pay the initial cost of acquiring the franchise, which can include the franchise fee, special deposits and nonrefundable inventory costs. According to the Federal Trade Commission, a franchisor must provide a potential franchisee with a franchise disclosure document that gives specific details about the franchise. Review the document carefully to determine if you are able to handle the initial and ongoing financial costs of running the franchise.

Support and Training

One of the benefits of purchasing a franchise is that you are able to get training and support from the franchisor. This training can be extremely helpful if you don’t have any business experience. Therefore, you should only pick a franchise that provides a considerable amount of training to ensure that you have the tools to make your franchise a success. In addition, a good franchise also provides help, support and updated training materials on a regular basis.

Local Competition

Another important thing that you need to consider before purchasing a franchise is the amount of competition in your local market. It is a good idea to survey your area for franchises in your industry. In addition, you also need to find out the franchisor’s expansion plans for your area. If your area is too saturated, you may find it difficult to make your franchise profitable.

Franchisor Control

Most franchisors impose rules that call for complete uniformity. In many cases, these rules are in place to protect the franchisor’s brand. For example, a fast food franchisor will place limitations on the menu, prices and store design. Therefore, you must be comfortable giving up some control to operate a typical franchise.