How to Buy a Franchise

If you’ve had the desire to become your own boss who builds and leads a business, but want to avoid risk, consider a franchise.

Franchises provide a “proven system” that ensures you are following a wellprescribed path to success. A great franchise will also include vital elements such as extensive training, brand recognition, ongoing education and many levels of support.

Having a complete understanding of the brand’s business model, support structure and monetary investments will help guide you in your decision process. You should consider some critical components to address business concerns and find the perfect fit in regards to your unique objectives and passions.

1) Cost Components

The initial investment is the amount of liquid capital required up front after all of the financing options have been applied. A franchise fee usually covers training, implementation and setup. Ongoing costs include royalties, which are usually calculated as a percentage based on gross revenues and may have a cap on the maximum amount. These royalties will also cover ongoing support programs and, in some cases, the markup on products required to be purchased directly from the franchisor will constitute royalties.

Other continuing costs include national marketing or advertising fees, which can be calculated as a percentage or a flat fee. The total investment will include the franchise fee, working capital, inventory and equipment costs. At United Franchise Group, we also offer financing options that can help cover startup on ongoing capital expenses.

2) Training and Support

Detailed training and operations manuals must be given to prospects to explain structure and how the training process will address their needs. The prospects should also be prepared to incur additional expenditures as the franchisor may not cover training travel and lodging costs. If any costs are associated with additional training for spouses, partners or staff, they should be specified as well. The prospect should inquire into the franchise’s ongoing marketing and support as creating a source of community and motivation through things like an established field staff or mentor program is crucial.

3) Discovery Day Opportunity

A great franchisor will make sure you see the home office as soon as possible, which will let you ask pertinent questions and meet the people you will be working with on a day-to-day basis. You will be able to see the training facility for yourself, meet the brand leader and, overall, get a firm grasp on what you can see happening in the future for the brand. Going through a Discovery Day will help you discover what is already in place and what needs to be modified so you can gain confidence and get comfortable with the company.

4) Expectations and Financial Questions

We have a saying in our office regarding prospects: “The best way to learn about this business is to sit down and talk to someone who does it for a living.” For example, franchisors can legally discuss earnings with you as long as they have disclosed the information in their FDD. Although it may take a few meetings to address all of your questions and concerns, obtaining information from the franchise will be immensely helpful in the initial stages of business ownership.

5) The Time Frame

It is important to know how long it will take before your doors are open for business and how long it will take to get your business up and running. Since you will be running the show, asking a few existing franchisees about how long it took to get their franchise off the ground and what factors influenced their timeline will help you in your planning process. You can take these factors into consideration to ensure that you remain on-track and start off strong.

6) Industry and Territory

Prospects should ask multiple existing franchisees about the growth or decline they have experienced and what products and services have the potential to help the company thrive. Franchisees can communicate which programs are in place to ensure franchise cohesiveness. They can also share marketing efforts that help the brand stand out and how those will continue to be reinforced.

Although each franchise has its own way of determining a territory, you should gather information to prove the demographics are valid.
After you have spoken with current franchisees, visited the franchisor headquarters and analyzed your finances, you will have the information you need to make a decision. You should realize the franchise does two things at once: matches your financial resources and
provides you with a positive lifestyle. Working alongside people who are experienced and enthusiastic will let you achieve your dreams and experience the “American dream”.

Doing your research and following the “proven system” will help you make smart choices and become confident in your decisions so you can thrive as a new business owner!

Andrew Cagnetta is the CEO of Transworld Business Advisors. Andy enjoys helping business owners/buyers realize the American Dream through Business Brokerage and Franchise Consulting/Development. Transworld Business Advisors,LLC is a worldwide franchise leader in business brokerage, franchise consulting and franchise development.

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