Buying a Franchise

Buying a franchise business is supposed to be much easier than starting a business from scratch. Lenders like it better because it represents a business model previously tried and proven. I can completely understand the love affair with franchises. But do not be misled. A franchise is only as good as the franchise model, franchise owner and franchise support. Some models have razor thin margins and some have high employee turnover while others have a heavy sales and marketing component or an integrated delivery model. You need to thoroughly understand the model, the time commitment, the startup and ongoing financial outlays, the people requirements and the operations. Before buying a franchise (or any other business), read up on the model and make sure you fundamentally understand it; and agree with it. Go visit existing stores and ask about employee issues, franchisor communication, product sourcing, product cost and increases, time commitment and other operational aspects of the business. Make sure you either understand the franchise agreement or have good legal advice regarding it. And, most important, develop your personal game plan: Are you in it for one store, two stores or more; are staying 5 yrs, shorter or longer; do you want to work the business or just own the business; and can you make a decent living (or for some, a decent return on investment) owning the business. If you don’t like marketing, hire it out. If you are concerned about managing others, get help. In all of these instances, know the cost and the effect on your bottom line. You need to know all of this before you sign a franchise agreement, get a loan and lease or buy any real estate. Very few people go on a vacation without planning it out first. So, why buy a business without the same level of forethought. Don’t get me wrong, owning a franchise business can be rewarding and lucrative, but it can also be an albatross on you and/or your finances. Due diligence and a solid game plan will help you navigate the franchise waters with minimal turbulence.

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