How To Buy A Franchise

2009 September 1

by Kyle

I’ve been writing a lot about franchise business opportunities lately and why they can be a smart move, but I’ve yet to say much about how to go about actually buying a franchise. To that end, I’ve compiled some information on how to buy a franchise and some tips on analyzing franchise business opportunities.

How To Buy A Franchise

Some attributes to consider:

How Established/Successful Is The Franchise? – Established franchises (think Subway) are likely to be much less risky than smaller, non-established opportunities. Why? An established franchise means established demand. Subway wouldn’t be nearly as large as it is unless people were buying their products. Consumers are just as likely to eat at your Subway as any other so long as you don’t deviate from the proven formula. Small, less-established brands may or may not have sufficient demand to prove profitable in many markets.
What Training Is Available? – The availability of adequate training is, in my opinion, among the very most important factors to consider if you plan to buy a franchise. Will you get step-by-step instructions? A weekend training course? Or just a 10 page manual? The amount of training provided could make or break your business.
What Is The Total Investment Required? – The total financial requirements of buying a franchise go far beyond the upfront franchise fees and initial inventory. You also have working capital and maintaining adequate reserves to worry about. The #1 cause of business failure is inadequate capitalization. Better safe than sorry.
What Are The Territorial Guarantees? – A good franchise agreement guarantees you exclusive rights to a specific territory. In other words, the franchiser won’t allow another franchisee to open another store in your territory, reducing competition. If there are no guarantees, think long and hard before buying.
Can You Sell Without Penalty? – Will you allowed to sell to another franchisee if you want to get out of the business? The ability to sell a successful franchise business at a profit is a huge advantage. You probably shouldn’t even consider a franchise business opportunity that doesn’t allow you to sell whenever to whomever you want.
Will You Be Required To Purchase Supplies And Inventory From The Parent Company? – If so, compare prices with local retailers. Buying from the parent company is only a good idea if it actually saves you money.
How Are Disputes Handled? – Most contracts include a clause stipulating arbitration in the event of a dispute. You should educate yourself on the arbitration laws of whatever state arbitration is stipulated to take place in.
Will They Accept Just Anyone? – Franchise opportunities that accept just anyone are a risk because an irresponsible or out-right immoral owner can cause serious damage to the reputation of the entire brand, your store included. A good franchise opportunity should have strict, established guidelines on who they will and will not accept. Never buy a franchise with lax standards. It’s not worth the risk.