By Chloe Smith
If you are looking to become the owner of your own business, but don’t want to start a new company and tackle the issues of establishing a new brand, buying an already existing franchise may be the way to go for you. By buying a franchise you acquire an already functional business and assume the role of an entrepreneur. However, this decision is not one to be taken lightly, since you will be investing a substantial amount of money. Below are some steps you need to take in order to make sure your investment is a good one.
Choosing the franchise to buy
Choosing the right franchise for you is the first and most important step and you should take your time with it. Some factors you should take into consideration when deciding to make a purchase include your personal preference and any past experience in the field the franchise does business in, as well as the amount of money you are ready to invest.
Determining the total cost of getting into business
Making sure you have calculated all the expenses required to operate the franchise before buying it is crucial since you don’t want to bite off more than you can chew. Apart from the franchise fee asked by the franchisor, these additional costs may include royalty payments, legal fees, supplies, rent, and other running costs. After considering all the expenses, you should make certain that you can afford the total amount of the required investments.
Researching the chosen franchise
After deciding on an affordable franchise operating in a field you are comfortable with, the next thing you should do is try to find out as much as you can about the company and the dynamics within it. Collecting all kinds of information about the franchise by talking to their staff or from any other reliable source will help you understand what exactly you would be buying if you decide to go through with the acquisition.
Getting professional help
Hiring a qualified lawyer to help you understand all the documentation, or an accountant to make sure everything is good in the numbers department, might be a good idea if you don’t feel comfortable assessing these things on your own, or just want to err on the side of caution. After all, you want to be one hundred percent sure about what you are getting into before signing the franchise agreement.
Reviewing the Franchise Agreement
It is a good idea to have a lawyer with franchise experience assist you with this step, in order to make sure you understand everything in the agreement. The agreement you sign should be consistent with all the verbal concurrences between you and the franchisor and should also cover the level of support you will receive from them. This can include legal support, support in hiring staff and training, etc. Understanding the agreement in its entirety is crucial since you might want to negotiate certain amendments to it, before putting your initials on the dotted line.
Learning from the experiences of others is much more cost-effective than learning from your own mistakes. Try to get in touch with several other franchisees and ask them for any advice they can give you, or what they would do differently in hindsight. This way you can get some first-hand information regarding what you can expect in the future, such as additional investments, difficulties in various business segments, profits, and answers to any other questions you might have.
Conducting a cost-benefit analysis
After gathering all the information you can on the franchise, making a good cost-benefit analysis shouldn’t be hard, and it will give you a clear, quantifiable overview of whether buying the franchise is a feasible decision. Start by making a comprehensive list of all the associated expenses and benefits. The list of expenses should consist of both direct and indirect costs, intangible costs, and potential risks, while the list of benefits should include direct and indirect profits, goodwill related profits, as well as intangible benefits. After assigning a monetary value to all the factors on the list, the difference in their projected values should give you a good indication on whether purchasing the franchise is viable or not.
While buying a franchise may help you avoid the difficulties of attempting to start a business from scratch, it is not without its own risks. Although it might look safer on paper, a franchise can fail just like any other business. However, by carefully planning ahead, choosing the right method of financing and diligently addressing all the issues associated with purchasing a franchise, some of which are pointed out in this article, you can navigate your way past all the challenges on your way to business success.
Chloe Smith is a business consultant for Chatime franchise and a part-time writer always willing to share tidbits of advice. She believes that passion, courage and, above all, knowledge breed success. When she’s not working, she’s probably somewhere cuddled up with a good book, and a cup of lemongrass tea (or more honestly binge-watching the newest Netflix hit show).