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Important considerations before buying a franchise

Important considerations before buying a franchise

My Business discusses some of the most important considerations to consider on how to successfully own a franchise business.

After doing initial research, owning and operating a franchise business isn’t an easy task for any franchisee. This is why franchisees must be able to improve their knowledge and skill set before making the decision to buy a franchise.

Here are some things to consider before buying a franchise:

  • Consumer demand
  • Franchise model
  • Franchisor’s track record
  • Finances and resources
  • The franchise agreement
  • Market opportunity
  • Risks and benefits

Consumer demand

Demand should be looked at in two ways: Is the current demand strong? Is it expected to remain as such? Before deciding on buying a particular franchise company, franchisees must look into the product/service quality that the company offers and its inventory cost.

Bear in mind that the franchise’s success depends on the product’s or service’s longevity. Also consider the franchise’s competition and its scope: Is there a lot of competition? How large is its scale—national, regional, international? Is the prospective franchise company successful in all these?

Franchisees should also consider the capacity to market the product(s) and/or service(s) of the business.

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Franchise model

Franchisees should have full confidence in the franchise model,  stemming from research and due diligence. Franchisees are encouraged to attend their orientation, set up a meeting with franchise sales and listen to what current franchisees and customers have to say about the company, as well as its products and/or services.

Franchisees should keep in mind that once they decide to enter into an agreement with a franchisor, they will have a proactive role in running their own unit/outlet and in contributing to the overall image of the franchise company. This is why it is important to have full confidence in the franchise business itself.

Franchisor’s track record

Seek feedback from both customers and current franchisees. Learn what they have to say about the franchisor. All franchisees may or may not have similar challenges running their own units/outlets, but it is likely that what the current franchisees’ experiences with the prospective franchisor will mirror that of yours as a potential franchisee.

Customer feedback is also important,  as the customer’s satisfaction or dissatisfaction will ultimately define the success of the franchise unit.

Finances and resources

Of course, franchisees cannot enter into any kind of business agreement if they are not sure of their financial standing. This particular venture will cost a considerable amount and could create a dent in the franchisee’s finances from the start-up fees, rent and utilities to liability insurance and the forecast costs for the first two years.

Aside from financial resources, franchisees also need to take into account their skills and time.  Franchisees must be prepared to devote their time to the franchise immediately after learning all necessary skill sets, particularly after opening the franchise.

Franchisees have a proactive role in implementing employee training and calibrating operational standards that are set by the franchisor. Franchisees are also expected to wear several hats in this venture, expected to deliver in each one of them by the franchisor.

Learn more about how a franchise operates and how to make money from it.

The franchise agreement

Seek advice from a solicitor, accountant and/or lawyer—these professionals will help in examining the details of the contract to better maximise the franchisee’s business advantage as well as prepare for possible challenges that franchisees could face in the future.

Learn more about getting legal advice on a franchising venture.

Market opportunity

Available opportunities can include the franchisor’s current market reach and their plans for growth and expansion. The franchise company should have a sound expansion plan and should be willing to share it with the franchisee.

This plan is reflected in every franchise unit and franchisees must fully understand and agree to the agreement to discern its benefits. Franchisees could also ask for market exclusivity in order to avoid facing unnecessary competition against other franchise businesses.

Risks and benefits

As with any business venture, franchisees will have to take on certain risks in order to maximise the benefits of their franchise. There is no one sure way to completely mitigate risks however, franchisees can lower, if not avoid, unnecessary risk. But before signing the agreement, franchisees should step back and ask themselves how they handled past financial challenges, obligations and opportunities.

Franchisees need to be sure of themselves and their capacity to handle risks. Out of these risks will rise benefits and opportunities for financial and business growth, so they should make sure that they are able to identify the ones worth taking and the ones they should avoid.

The franchise owner’s business acumen and sense of self, along with their developed skills, will ultimately define the success of their franchise venture. Franchisees should be as pragmatic and resolute as they can and seek professional advice when necessary, but also must allow room for some fun.

It takes a sharp sense of business to succeed in this venture—however, some heart is also needed to make sure that they don’t get burned out in the process.

Important considerations before buying a franchise
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