3 Things You Must Know Before Buying a Franchise
In 2008, I made the decision to invest in my first automotive franchise. The process was not a straight road and I learned a lot about buying a franchise business.
Looking back I realized that there are a few thing I wished I had known before investing.
Buying a franchise can seem like a daunting task but I certainly believe it is daunting if you do not know what you are undertaking.
Franchising is a known and proven business model that has been around for a very long time. It is one of the most common models when it comes to business ownership. However, asking the right questions and having the best information can make a huge difference.
Here are 3 things you should know before buying a franchise:
When you are buying a franchise you want to make sure there is a strong demand for the product or service.
You also want the demand to continue for an extended period of time.
This means that you should make the decision to find and key in on franchise that should be relevant for a long time.
An example of a fad that was popular for a short period of time is the frozen yogurt phase and the cupcake craze. These are two examples of times when there was a demand for a product but it has since cooled off.
Secondly, you want to know the competitors in your business and to have an inkling if more competitors will enter the space in the next few years.
This is because you want to position your company at the top of the category for whatever product or service you are selling.
When new competitors continue to enter the market that will lead to pushing your franchise to the least popular space and lead to other franchises being at the top of mind for consumers.
In order to continue to be at the top of the category that your franchise is competing in, it is very important for the franchise to have the best quality product compared to the competition and to put in the best marketing efforts than any other competition.
2. Franchisor’s Business Track Record
You must have more than enough information about the businesses record and reputation and it is important to do your due diligence when it comes to speaking to existing franchises.
Existing franchises are more likely to give you the inside scoop about the day to day operations than the corporate head office is willing to. The corporate head office will probably be more inclined to give you the generic spiel about how business is doing.
It also makes sense to do your own research on the brand. An experienced franchise consultant can help you with this.
It is very crucial that the business has the infrastructure for franchisees and prior franchisees have had success with the business.
If there is no signs of success with the franchise prior to your interest, it means that the startup is either new or there is a lot of risk involved with the decision.
Lastly, you want to make sure that there is no ongoing lawsuits against the franchisor.
3. The Legal Agreement Between You And The Franchisor
When it comes time to sign on the dotted line, it is very important to understand what your are signing and the ramifications of your decision.
Since this is not a small thing that you are partaking in, it makes sense for a franchise lawyer that specializes in contracts to take a closer look.
When I work with clients, at The Franchise Agency, I encourage them to specifically use a franchise lawyer because they understand the ins and outs of franchising.
A franchise lawyer with experience will have seen many franchise agreements so they will understand what to look for and there will not be any surprises. In addition, a lawyer will negotiate better terms on your behalf and come to conclusions you probably would not have thought of.
This is important because when you are ready to sell your business, you will need to know the contract that you have signed.
These are three main things you need to consider when you are buying a franchise.
What else would you add to the list?