How To Evaluate a Franchise

From fast food restaurants to car washes and mobile dog grooming vans, there are countless ways you can get into business for yourself by buying into a franchise.  A franchise is a method by which a specific brand name company allows an independent third-party operator to use their name and concept by paying an initial fee for franchisee rights, with continuing sales royalties.

How to decide which of the numerous franchise opportunities is tailor-made for you?  First, establish a budget of how much you can invest, and then seek opportunities within those parameters. You're wasting your time if you are looking at an opportunity requiring a $75,000 investment when you only have $25,000 to put down.

Being in business for yourself, even with support from the franchisor's headquarters, often means long hours and commitment, so be sure you have a passion for the kind of franchise business in which you are investing. If you think dry cleaning is boring or could care less about carpet cleaning, pass on those opportunities to find a subject matter you feel excited about, perhaps food service, pet grooming or dog walking.

Be clear about your upfront expenses when investing in a franchise. Before you sign any contracts, ask what your estimated costs will be when it comes to marketing, training, insurance and stocking inventory.

Do a thorough background check of the franchise company under consideration. Find out how long and in what states they have been doing business. Talk to other franchisees to see if they are satisfied with the communication and support they get from headquarters. Determine whether or not the franchise company has been involved in any recent lawsuits or if any of their directors have a questionable business past.

Be specific about to what your franchise fee entitles you.  Will you and your employees receive personal, one-on-one training, or will you be expected to learn the business from instructional manuals and videos?

Find out what the non-compete terms of your franchise are so that you will not unexpectedly have the same franchise open within a short distance from your location.

Ask if you are bound by contract to purchase your supplies and inventory from the franchise company, which may prove to be a lot more expensive than putting the job out to bid among local vendors. What are the terms of ending your relationship in the future or selling the franchise to another party?

In the initial meeting, is the franchise representative more interested in getting your fee than answering your questions? Never sign a franchise contract in a hurry. It's a smart idea to have a business attorney review the terms and fees involved to avoid misunderstandings later.


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