How to Buy a Franchise

“Look before you leap” is an old adage that’s especially appropriate for the budding entrepreneur. Many people become so focused on the idea of self-employment that they fail to even consider all of the possible outcomes of a business opportunity. There are many factors to consider before deciding if buying a franchise is the right choice for you.

Instructions

Difficulty: Moderately Challenging

1. Do your homework. If you are contemplating purchasing a franchise, don’t simply rely on the marketing materials the franchisor provides you to make your decision. The company is required to provide you with a franchise offering circular (FOC) at least ten days prior to signing the franchise agreement; this document should contain the litigation record of the franchisor. The FTC and franchisee associations such as the American Association of Franchisees and Dealers should be able to tell you if any complaints have been filed against the franchisor. You may also want to interview current and former franchisees to ask about their experiences as franchise owners.
2. Be aware of potential pitfalls. A lack of federal regulation means that false promises, scams, and outright fraud are relatively common occurrences in the franchise industry. Many franchisors promise training and support services that are never delivered. Encroachment, a franchise owner attempting to operate within another owner’s designated territory, is another major issue in the franchise industry. For franchise owners who may someday want to own their own independent businesses, non-compete clauses are an additional concern.
3. Be realistic with your expectations. Many prospective entrepreneurs think that purchasing a franchise will guarantee their success. They have been led to believe that franchises are easy to manage and will quickly turn a profit. In reality, some franchises may take up to three years to break even. Many franchises take five years or more to become successful. Franchisees who haven’t properly prepared for this scenario are setting themselves up for failure.
4. Seek expert advice before making your investment. When hiring a franchise consultant, however, remember that anyone can call themselves an expert. Many people who call themselves consultants have no formal training and limited experience in the field. A consultant who offers free or low cost services is no bargain if he or she doesn’t have the expertise you need to protect your legal rights. Ideally, you’ll want to hire an attorney who specializes in franchise law instead of handling franchise cases as part of a general practice