tips to buy a franchise business

5 Tips to Buy a Franchise And Make Money Quickly!

Small Business Ideas

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Are you considering opening a franchise to fulfill your entrepreneurial dream? Then before making the first move, read these 5 key tips to buy a franchise. And I am sure these tips will help you avoid any costly mistakes at a later stage. 

tips to buy a franchise business

In case you have decided to do your own research to know the success rate of franchised business, then you must have come across rosy data. Yes, a simple Google search usually presents you with information like “franchise businesses have a success rate of more than 90% as compared to 15% survival rate of independent small businesses”. Such information indeed sounds appealing to a newbie entrepreneur. But the reality is that franchise businesses take a longer time to break even. Therefore it is very important to associate with the right franchiser to start making a quick profit from the franchised business. 

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5 Important Tips to Buy a Franchise That Makes Money Quickly

franchise business model

Know the Products/ Services That You Plan to Sell

Be it taking a franchise or starting a small business independently, what ultimately matters is “sales”.  So, you may settle for an established franchise business brand that is popular enough to drive buyers. However, if you don’t have enough knowledge about its products, then it can prove to be disastrous! Why? Because you will be always dependent on the franchisor for marketing and promotion. It simply means you won’t have the freedom and flexibility to grow the business your way. This can adversely affect your sales figure on the long run. 

Let me explain with a simple example. Suppose you plan to promote your franchise business on social media, for which you need well-shot videos. You can request the franchisor to provide you with a few promotional videos but what if you don’t like their content? Now, if you don’t have sound knowledge about the products then you can’t create your marketing videos to promote the business. 

So, the first tip to buy a franchise business is to know everything about the products and/or services you plan to sell. And this is only possible if you develop a keen interest in the franchising model and the products.

Primary Market Research Is Important To Ensure Your Franchise Business Success

primary market research methods

Once you have a good knowledge of the franchisor and its offers you will be able to assess its demand in the specific area where you plan to open the franchise. And this is only possible if you can plan a proper market research to find out who are your competitors, what types of products are they offering and the price range, whether customers are happy with their products and services. 

Let’s explain. Suppose you plan to open a food franchise. After conducting market research, you find out that quite a few fast-food franchise businesses are running successfully in your locality. In that case, you may consider a different niche, e.g., an exotic food franchise or a sandwich & cake shop. 

Consider the Expenses- One of The Key Tips to Buy a Franchise Business

You may have come across articles that narrate how to start a franchise business without money. However, the reality is that you can’t open a franchise without investing money. Of course with proper planning, you can keep the costs down. 

The best part about investing in a franchise business is that you are putting your hard-earned money into a proven business model. Your franchisor has already done the tough work for you by investing money to establish the brand. Now they are offering you to be a franchisee because they want to expand their business. Hence the risk of failure is comparatively lower in a franchising model.

What Are The Costs To Consider to Buy a Franchise Business?

  • Your franchisor charges a franchise fee which varies depending on their brand popularity. Some franchisors agree to refund the fees, in case you fail to continue. However, most franchisors opt for the non-refundable option.
  • The cost of renting a commercial place and then doing the interior to run the business. The good thing is that most franchise businesses need a small space and minimum infrastructure to get started.
  • Depending on your franchising model, you may need to buy necessary supplies, stocks, and equipment  from the franchisor or from external sources.
  • Employee salary,  in case you need to hire staff to run the business.
  • Royalty to be paid to the franchisor. This royalty can be a fixed flat rate or a percentage of the profit, as defined in the franchise agreement.
  • Marketing and promotion costs. Usually, the franchisor offers necessary support in developing the marketing plan, technology implementation, staff training, document writing, and so on. However, the actual marketing and promotion work needs to be done by you, i.e. the franchise business owner. 

Now that you know the basic costs to set up a franchise business, you need to plan the funding. Initially, most business owners invest their own money to start the franchise business. Later they look for alternative financing options to expand their business. 

It is best to assess your own financial situation and then take the final call. Remember, it is one of the tips to buy a franchise business that you can’t afford to ignore! 

Collect Complete Information About the Franchisor

Do you know enough about the franchisor before taking the franchise? I am sure, many will give a vague reply! Just because the franchisor is a known brand, that doesn’t mean they will be easy to work with. There are so many important things that you should know about the franchisor to decide your business success.

What You Should Know About The Franchisor?

  • Is it a popular brand?
  • Since when they are offering franchising opportunities? 
  •  Is there enough market demand for their products?
  • Are you sure of your franchisor’s financial stability?
  • What is the actual business of your franchisor? Is it making money? Do they have any future plans to grow their overall business?
  • What are the initial deposit amount and royalty structure? Is the deposit refundable? 
  • How many franchisees are working/ have worked with the particular franchisor? What is the success or failure rate of their franchising model?
  • Is the franchisor active in promoting its business via social media, business meets, online forums, franchise fairs, and on other platforms?
  • What kind of support does the franchisor promise to offer? Can you quickly reach their support team to solve  queries or for other assistance? 

Now that you know what sort of information you need to collect about the franchisor before settling for a particular one, the big question is “How?” The easiest route is to visit their website and social media pages. You can check out feedback/comments/ reviews of customers and existing franchisees on social media and other online forums. If possible, you can visit their office for direct interaction.

Many franchisors participate in Trade Shows, Fairs, and Webinars. You can visit these places to know more about your franchisor. Also, these are the places where you can connect with other franchisees to know their experience of working with the franchisor.  

Read The Agreement And Understand the Terms Before Signing The Contract

I think this is one of the often-overlooked tips to buy a franchise. When you find a franchise business that sounds reliable and affordable, you might be tempted to sign the contract without checking the clauses. And this is a grave mistake that proves to be costly in the long run. So, you must read the agreement thoroughly and understand the contract terms.  

What Is Typically Included in The Franchise Agreement?

  • The location or territory where you will operate. Also, the agreement outlines any exclusive rights you may enjoy.
  • Operation details  explain how the franchisee is expected to run the unit.
  • Duration of the agreement, i.e. for how many days/years the franchise agreement remains valid.
  • Training and support that the franchisor might offer. Will it be ongoing support or one-time?
  • The initial franchise fee or investment that the franchisee makes to use the trademark and operating system of the franchisor. The agreement should mention whether this investment is one-time or can be done in installments, whether it is refundable or not. 
  • The royalty structure and/or ongoing fees as determined by the franchisor. 
  • Trademark, patent, logo, and signage usage rights to be enjoyed by the franchisee.
  • Any advertising and marketing support that the franchisor might provide, whether the franchisee needs to pay for such services. 
  • Policies related to renewal/termination or cancellation of the franchise agreement.

If the agreement sounds too complicated, then you can consult a legal expert to understand the terms. You can approach the franchisor too, for further clarification. Remember, the franchise agreement is a crucial document that outlines the rights and responsibilities of the franchisor and the franchisee. Once signed, you need to abide by the terms. 

To Conclude

Follow the above tips to buy a franchise business to reduce the chances of failure. And finally, you should remember that every business comes with its share of ups and downs, no matter how carefully you plan to proceed. So, don’t let initial challenges dampen your spirit!

 

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