This article are provided for information purposes only, and are not intended as legal advice.


What should you consider when buying a franchise?

January 29th, 2010

A franchise is a business model which is duplicated over and over again. Presumably, the franchiser has debugged all the problems of operating a business and has found a formula which works efficiently, smoothly and is easy to implement and operate.  They try to make the system fool proof as long as you follow their system.  Buying a franchise does not guarantee a success.  A new franchise is a start up.  the Master Franchiser has done studies in demographics, marketing and evaluating potential customer base, traffic etc but they cannot guarantee your success. 

 

If you have never owned a business before, the franchise system provides you the training and support to operate a business.  If you were to buy a business which is not a franchise, once the old owner leaves, you are on your own for training.  Under the franchise system, there is always someone to call and get help. 

 

Investigating a business which you want to buy is difficult because every business is unique.  Every franchise is very similar the only difference will be the revenue and traffic in each location will differ.  You can talk to other franchisees and see how much support head office gives to the franchisee.  You can sample their food if it is a food franchise, you can see if there are consistencies between different franchises.  All should be the same if they are under the same banner.  When buying a franchise, you need to investigate the business concept/model and also the master franchiser to ensure that they can deliver what they promise to you.

 

Does the master franchiser provide you the support you need?  Do they try to help you expand their business or are they in the business of selling as many franchises as possible therefore there are franchises close to your location which results in you losing some of your customers?

 

Every state and every province has different laws as they pertain to franchises.  Look at the fine print of the franchise agreement.  Can you resell your franchise or do you have to sell it back to the franchiser? A  franchiser may want to prevent too many franchises being listed for sale at the same time.  Some franchises want to approve the vendor, do you know what their current franchiser makeup is?  I.e if you found a buyer for your franchise, will the master franchiser turn down your choice?

 

Franchises are an excellent opportunity for many investors.  The key to any franchise is location, location, location.  If you have the best franchise but in a poor location, it will not succeed.  Many franchises fail because of location.  When looking a franchises, you have a choice of a new franchise or an existing franchise.  An existing franchise you know the revenue stream of the business therefore it is not a start up.  If you buy a new franchise, you need to determine if the franchise is suitable for you, if the franchiser is good to work with and is the franchise in an excellent location?  Remember, you can have a lot of traffic flow to the plaza where your franchise is located but if the customers are going to a restaurants only, will they go into another store beside the restaurant?  That will determine if the traffic to the plaza is specific to a specific tenant or will you benefit from that traffic if you are located in that plaza.


Filed under: buying a franchise — Gary Landa @ 2:03 pm


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