Getting a franchise is an excellent way to start your own business, especially if you don’t want to start from scratch. You can reap the benefits because it’s a proven business model that already works while giving you an undeniable advantage over smaller local businesses in your area.
But even if your chances of business success are really high when you decide to become a franchise owner, it’s important to understand that you are getting into the business for yourself, not by yourself.
The franchises already come with a series of operation manuals to streamline the way you run your business, giving you less control over it. Therefore, if this is still your goal, you need to prepare yourself first, and consider these tips before investing in a franchise brand:
Make the right decision
The first thing you need to consider is the type of business you are interested in. Do you have the skills for it? Are you going to be passionate about running this business every single day? You should go with the one most compatible with your needs, skills, and training.
In addition to that, it’s important to develop a business plan that includes a market study to find out if your possible franchise has enough demand to succeed in your area.
Learn everything you need to know about the franchising world
Do the homework and collect as much information as you can about the industry and the franchise you decided to go for. Ask questions, get to know the franchisor, educate yourself and study the field. You can always find online courses or available public information about franchising, such as A Consumer’s Guide to Buying a Franchise provided by the Federal Trade Commission or the Pre-Entry Franchise Education E-book created by FranchisED.
Value the investment
You need to know how much will it cost you to have your franchise up and running. Some of the things you need to consider are the franchise and royalty fees: the franchise fee is the one-time payment you make when getting a franchise for getting the rights to the name, techniques, and systems created by the franchisor, and it could go from $10.000 to $100.000. The ongoing royalty fees are what you pay the franchisor for the advertising and marketing support you receive and for using their brand name. The fee is usually a percentage based on a portion of your sales.
The working capital, the cost of equipment, and the opening inventory are some other things you should also take into consideration before taking the plunge into your own business.
Talk to other franchisees
A franchise contract should never be signed without having taken the precaution of speaking with one or more franchise owners that already made the investment in the same business you are about to put your money.
The reason why you should reach out to them is to get their story and consult everything, from the pros and cons to hidden costs and how much support they receive from the franchise. This will help you have a clear vision of the economics of your franchise and decide for yourself whether is beneficial or if you should consider other options.
Read the FDD Disclosure Statement Carefully
The Franchise Disclosure Document is a document included in the legal contract that provides all the information the potential franchisee needs to understand how the franchise brand works. Carefully review the FDD with the help of an attorney to have a full understanding of your rights and responsibilities when signing the franchise agreement.
Overall, investing in a franchise it’s still one of the most profitable ways to start a business in the US. But having a complete understanding of the implications of owning this type of business and why you are getting into it is key: the more you know about it, the better chances you’ll have to select the best franchise for you.