Buying a franchise is the safest way to start a business – Step by Step Guide
Buying a franchise will help to achieve your dream of business ownership success.
However, purchasing a franchise is not always easy. Also remember you are not “buying” a franchise, you must be approved and awarded the franchise license by the franchisor. It’s all about making good matches for both franchisor and franchisee.
Here are the key steps to consider before buying a franchise.
Why do you like to do? What makes you want to get up in the morning? It seems everything is a franchise these days so first think about your strengths and weaknesses. Keep an open mind – think out of the box. Get out of your comfort zone as you may be surprised what concepts may be right for you. It is necessary to find the right franchise which suits your budget, qualifications and personal interest. Then, research about the franchise requirements to ensure that you qualify and have all the information you need.
Identify Individual Franchise companies
Once you are done with your research, evaluate individual franchise companies and select one which you think is the most suitable for you. Try to choose the companies that will have territories available in your desired location or select a model where there are no territory restrictions. There are many franchise brokers which can assist with presenting opportunities – ones you didn’t know about or think were franchises.
Franchise Qualification Requirements
To ensure that all the franchisees are eligible in terms of financing and professional experience, franchisors set minimum qualification requirements. This is because the success/failure of a franchisee will directly impact their business, brand image, goodwill etc. Thus, there are few requirements that are often taken into consideration such as Credit score, Net Worth, Cash in Hand, Management Experience, Industry Experience, outside income etc.
Important things to Consider
- Territory – do you have a defined territory or are you able to work the country with no boundaries? Being limited to 1 territory could affect your income.
- Start-Up Costs – look at all costs associated with starting your business. There are franchises available where you can work from home needing only the telephone and internet.
- Training – what initial training is provided? What’s their on-going training and support programs? Is the original founder still involved in the training?
- Cash Flow (ROI) – In making a plan it’s important to be prepared. How long will you have to support your family until you start cash flowing. What is the time frame in a franchise for return on your investment? Do you have to do you own billing & collections? What will be your client acquisition costs?
Submit Request for Consideration/Application
Once you are done with all the research and analysis, select two or three industry categories. Within each category, pick one to three companies from which to request information. The companies will match you with a representative, and you should receive information back from them in a week by e-mail and/or telephone.
Study Franchise Disclosure Document
At some point during the Discovery Process the franchisor will provide you with the franchise disclosure document (FDD), which contains important information regarding the franchise. Review this information carefully and get any questions you have answered before you proceed to the next step.
Visit or Speak with Existing Franchisees
The best way to get information about any franchise is to visit or speak the existing franchisees. Contact them and clear all the queries you have about the business. This is the best source to get to know about their lives as franchisees and evaluating how well a franchisor supports them.
Visit Franchisor – Usually an invitation and not a requirement.
If you’re about to enter a business it’s a good idea meet the people who will be supporting you to run your business successfully. You can get any of your final questions answered, but the franchisor will also be evaluating you as a potential franchisee.
Once you have gone through all the above steps, it’s time to make your final decision. The final step in the mutual evaluation process is to sign the franchise agreement and meet the heads and key executives who will work with you as a franchisee. If you’ve carefully followed this process, then congratulations! You’re now into a franchise business.