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6 Factors to Consider Before Buying a Franchise

6 Factors to Consider Before Buying a Franchise

If you’ve always wanted to run a business but find the start-up phase too daunting, you should consider purchasing a franchise instead.

The franchising model works like this – you (the franchisee) buys the rights to market and distribute the goods and services of another company (the franchisor) and to use its business name for a fixed period of time.

As you are essentially borrowing another company’s proven business model, franchising can be a much safer bet for starting a new business. While this has its advantages, there are also disadvantages to franchising that may not sit well with some.

So before you decide if it’s right for you, here are 6 factors you should consider before buying a franchise.

1. Demand

As is the case before starting any new business, find out if there is a demand for the product or service you intend to offer. If you are buying an overseas franchising licence, be wary that what sells well in other countries may not be equally well-received here.

So don’t jump on the opportunity without doing your research. The potential for expansion should also be considered if you intend to branch out to multiple outlets in the future.

Look at the company’s franchising track record

2. Track Record

Just because a company offers franchising opportunities doesn’t mean it’s worth taking up. You should only look at companies that have proven themselves successful at franchising their business.

If possible, speak to current franchisees about their experience so you get a clear idea of whether the franchise is worth investing in.

3. Investment

One of the biggest barriers to buying a franchise is that unlike starting your own business, where all the capital is invested in your operations, a sizeable portion of your initial capital goes to the franchisor as fees for training, equipment and licensing rights. This figure can range from a few thousand dollars to a few million.

Look at what the franchise company will be providing in exchange for the franchise fees, and evaluate the time it will take to earn your upfront costs back to determine if a franchise is a sound investment.

4. Competition

If the franchise is a well-known brand, there may already be lots of franchisees operating in the vicinity, and not to mention other rival companies. Consider first if the franchise and industry you’re choosing is a strategic business to enter as it’ll be hard to establish yourself if there are many competitors in that market.

If the product being sold is unique then competition will not be an issue. But for most businesses, this will not be the case.

5. Training

A major advantage of franchising is the training and support offered to franchisees. If you don’t have any entrepreneurial experience, then it is advisable to choose a franchise that offers substantial training. Some even provide on-going support even after your franchise is up and running.

With proper guidance and training, the chances of your franchise being successful right from the start will increase greatly.

6. Restrictions

It is very common for franchisors to impose certain restrictions on how their franchises are to be run. They usually require franchisees to follow guidelines and standards which may encompass things such as product offerings, prices, operational hours, and store design among others.

So you may be the boss, but the franchisor generally has the control. If you’re not comfortable with this kind of arrangement, then running a franchise may not be what you’re looking for.