How to Make the Commitment to Buy Into a Franchise
Being an entrepreneur does not necessarily mean starting a business from scratch. Another option is to buy a franchise business, such as McDonald’s. With a franchise, you don’t have to worry about creating a new product. You’ll be selling proven successful products or services to consumers who are already familiar with the name of your franchise. Obviously, buying a franchise has a number of benefits but know how to enter the appropriate agreement.
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Things You'll Need
- Internet
- Franchise application
- Ability to travel (optional)
- Location for business
- Financing
Instructions
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How to Make the Commitment to Buy a Franchise
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Investigate franchises. Before you make a commitment to buy a franchise business, you need to choose the right one. If you have a company in mind, visit their web site and request additional information. You can also search for franchise listings on the Internet to get an idea of which franchises are available. Also use the Internet to search for media history on the company, including negative news stories, consumer complaints, and franchisee (the person in your role) issues.
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Choose a franchise. Pick a franchise from an industry you are interested in. Remember your market and pick a business that will meet the needs of that market.
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Complete a franchisee application. Most franchise businesses allow you to complete these applications via the Internet through their web site. The applications vary a little but are primarily used to decide whether you would be good franchisee material and whether you are serious about moving forward.
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Complete training. Before you are asked to enter an agreement, you will probably be required to complete some type of training. You may have to travel in order to attend a workshop or seminar. Other franchises allow you to watch the training materials online.
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Select a location. Next you need to choose a site for your franchise. Most franchisors do have people in your area who will help you find the right property for the business. They want you to succeed as much as you do because that increases their revenue, too. Some franchisors insist on having the businesses built new; others will allow you to locate in vacated shops.
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Secure financing. Once you select a site and have estimates for the construction or renovation, as well as the fees associated with buying into the franchise, you will need to find financing. Small Business Administration (SBA) loans are often available for franchisees. Some franchisors can also help connect you with lenders who work with them. Borrowing the money from friends and family members or your own retirement fund is also a possibility.
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Sign the agreement. Once all of the details are ironed out you will be asked to sign a contract with the franchisor. This is a binding contract so read it very carefully. If you have not received one yet, ask to review the company’s Uniform Franchise Offering Circular (UFOC) which is generally attached as an appendix to the agreement. Do not sign the agreement until you have thoroughly read the UFOC – it documents everything you need to know about the company’s history. If you’re comfortable with the details, sign the contract and you’re an official franchisee.
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Tips & Warnings
Make sure the details outlined in the UFOC match those in the franchise agreement exactly. If there is a discrepancy, the signed contract is considered binding.
Know the financial arrangement you have entered into with the franchisor. Each franchisor has a different relationship with its franchisees. You may have to pay a percentage of your revenue to the franchisor, plus an additional fee for marketing costs, for example.
Remember not all chains are franchises. McDonald’s is one of the best known franchises in the world but plentiful Starbucks coffee houses are not franchises.
Consider working with a lawyer who knows about a buying a franchise. The lawyer may add to your costs but his or her expertise could prevent you from making a more costly mistake.
Be prepared not to make a profit. Most businesses take up to 3 years to start turning a profit. Franchises may not take as long but if you are not prepared for some tight financial years you may end up losing the business before you even had a chance to make it a success.
Before you buy a franchise business, be sure you have the time and energy to devote to the endeavor. Some see it as an easy road to business ownership but running a business franchise is not easy.
