Businesses For Sale
Buying Into A Franchise: What You Need To Know.
If you want to run your own business, you may want to consider a business franchise opportunity. Franchises are a popular choice for many aspiring business-owners, because a lot of the risk has been cut out of the process: your business comes with ready-made brand recognition, and the products have been tested and refined for years or even decades. Essentially, someone else has already done the hardest work involved in starting a business—and you can step in to reap the rewards. But not all the risk has been cut out. Buying a franchise is a big investment, and not all franchises succeed in all markets. Here’s a list of questions to ask before determining which franchise is right for you.
Do I have the right location and market? Make sure your location is appropriate to your franchise. Starbucks and 7-Eleven, for example, are both franchise businesses—but they are successful with two very different demographics. Make sure you’ve picked the right neighborhood to ensure your franchise’s success. What are my start-up costs? You’ll have to buy goods from your parent company, as well as some other start-up costs—many franchise businesses have trademark signs, construction styles, statues, or other things you’ll have to pay for up front. You’ll also have to pay a franchise fee.
These can cost from around $10,000 for a small, home-based business franchise opportunity to over $100,000. In addition, there’s money for insurance, attorneys, employees, equipment, operating licenses, construction, rent, landscaping, and other things. Most franchise-owners can expect to pay from around $200,000 to a few million in start-up costs. What happens if my franchise doesn’t succeed? Some parent companies are harsher than others on non-performing franchises. Find out up front what happens if your franchise doesn’t make expected sales. Some parent companies will have penalties, while others will simply take back their goods and property if your business doesn’t work out. How do other franchise owners do in this business? Don’t buy a franchise without speaking with several other franchise owners in the same company. Ask if they like the system, if their business realities match up to expectations, if there were any hidden costs, and any other crucial questions that may apply. Parent companies can sometimes present their franchise opportunities as rosier than they really are—so be sure to get a second, third, or fourth opinion. Package or product? Most of the time, a franchise will operate on the “package” model—that is, when you buy into the business, you don’t just get the goods.
You also get a complete business model from the company, outlining the steps you’ll need to take to succeed. “Product” franchises are basically dealerships, gas stations, or other businesses that are there simply to distribute the parent company’s goods. With a package model, you get more guidance—but with a product model, you get more control. Which will work best with you typically depends on experience level and style, among other factors. Will I be competing against my own business? So you want to buy an H&R Block franchise. How many other H&R Blocks are in your area? A little healthy competition is one thing—but you shouldn’t have to compete heavily against your own brand. Do a little density research before picking a franchise, and make sure your market isn’t over-saturated. Buying a franchise is an exciting step to owning your own business—but don’t buy blind. Do your research, talk to other franchise owners, and get proposals from numerous parent companies before deciding on the franchise that’s right for you. Look before you leap—and you won’t regret it.
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