Thinking of buying a franchise? You aren’t alone. The number of people interested in this path is on the rise, and for good reason.
Franchises offer entrepreneurs a chance to buy and run a business with proven practices in place, a recognizable name, and a verifiable market of customers. They also provide a path for gain and growth without many of the pains of traditional business startups.
The best franchises are set to up reduce headaches for their owners, but they aren’t without their challenges. For one thing, buying a franchise can be difficult. And, later, you might find that running a franchise unit profitably can be a challenge, too.
So how do you buy a franchise? Here are the steps you should take:
Understand the role of a franchisee.
As a franchisee, you’ll be tasked with following rules and implementing the franchisor’s vision and practices. It’s unlikely that you’ll have the creative freedom to experiment with product ideas, displays, signage, or any other part of the business—even if you think those moves would boost your sales.
Inventory your strengths.
Depending on the franchise you choose, you may need to demonstrate sales savviness, people skills, and technical know-how in order to succeed. Consider whether you have those strengths and the experience you’ll need to run a business and manage a team of employees.
Build a substantial reserve of money to buy a franchise.
Franchise startup fees can cost tens of thousands to hundreds of thousands of dollars, but those aren’t the only costs you’ll need to prepare for.
You may need to save up for equipment fees and inventory and have enough working capital on hand to survive the first 3-6 months of operations.
And, because franchises are seldom profitable in the first 12 months, you should also plan to have enough cash to cover your personal income needs for the first full year of operations.
Home in on a franchise that interests you and talk to other franchisees.
Commit to speaking with other people who have opened a franchise with your target franchisor. Ask about their experiences in funding and building the business, their costs, and the level of support they receive from the franchisor. Their insights can help you decide whether buying a franchise (or any one franchise in particular) is the right move for you.
Connect with your target franchise.
Visit the franchisor’s website to learn about becoming a franchisee. Then, ask for their franchise information packet, and inquire about the prequalification process.
Read the franchise’s financial disclosure document (FDD).
Study every part of the FDD to learn about the costs of running a franchise, any litigation that’s pending against the franchisor or key executives, bankruptcy information, and other data that could impact your success as a franchisee.
Meet with an accountant and small business attorney who can help you buy a franchise.
Hire a certified public accountant (CPA) to ensure you’re in a good financial position to buy and maintain a franchise.
Here are a few accounting firms other owners recommend. Check them out here (and be sure to click the logo to learn more about them):
Then, hire a small business attorney to help you review the requirements spelled out in the franchise contract.
Consider working in a local franchise before you buy a franchise of your own.
Think about taking on a short-term position at another franchise location before agreeing to purchase your own. Your time within the business will help you gain an inside perspective on the inner workings of the business and the pain points of operations.
Evaluate whether buying a franchise is the right move for you.
Compile what you’ve learned from your experience within the franchise, the information you’ve read, and the other franchisees you’ve spoken with. Decide whether you feel comfortable moving forward with the franchise you’ve chosen, or consider restarting your search to include other franchises or business ownership opportunities.
Buying a franchise
Ready to buy a franchise? Log into your owner’s portal for a step-by-step guide, resources, and articles that’ll help you find a franchise, attain financing, and conduct the work that’s needed to make your venture a success.