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Buy A Franchise (Is this a good idea?)

On a laptop looking for a franchise

Are you one of many people that wants to know how to buy a franchise? Starting a franchise is not as easy as you may think.

Being your own boss offers a variety of perks, but there are a few different things you need to know. You want your franchise to be as successful. That requires a lot more than searching a list of franchises and their prices to buy a franchise.

These are the steps you should follow when buying a franchise.

Finding A Concept That Fits

When you’re looking to buy a franchise, I suggest using the IFA (international franchise association) website or other popular websites.

Finding a concept that fits can be time-consuming, Consider the cost and location of the franchise, and ask yourself a few questions. Would I purchase this product and why? Is there a lot of competition or no competition in my area and why?

Questions become very apparent when you buy a franchise so ask yourself questions before you consummate the deal.

Are human resources available for you? A good labor market is a must.

What financial resources do you have? Most franchises require that you have a $300,000 net worth.

The more information you know about what you need and want, and your financial status, the better you will be able to make a knowledgeable decision about buying a franchise.

Signing the application

Submitting the Application to Buy a Franchise

To get the ball rolling, pick at least two industry categories, including

  • Healthcare
  • Cleaning
  • Foodservice
  • Senior Care
  • Automotive

And many more. For each category, you choose, pick at least two, a maximum of three, companies or concepts you would like to have more information about.

There’s a chance you may not find what you’re looking for the first time. The good news is you can search the categories again to find different industries that are a better fit for you.

Legal Matters

Legal Matters when you Buy a Franchise

Once you reach this step, you’ll get a detailed look at the industry, as well as, the role of the franchisor and franchisee, the business model, and the company.

This is the time you will receive the company’s FDD or franchise disclosure document. This disclosure document can range anywhere from a few pages to many pages, but it is important you read the document in its entirety.

As a matter of fact, I would have an independent attorney look over all documentation before signing. Don’t let anyone rush you as you have 14 days after receiving the FDD before you can accept the offer to buy a franchise anyway.

Support and Training

When you’re a franchise owner, there are a variety of perks.

Having this title means a lot of things are done for you, including concept creation, research, product and the development of services, and you have access to many trade secrets.

You will have information regarding training and expectations. Use this time wisely and ask yourself if this is going to fit into your business plan.

Disclosure Review

The disclosure review or Discovery Day is the time when you have a sit-down with the franchisor representative. This happens before you buy a franchise.

The franchise disclosure document will be discussed along with the available territory. This is the best time to get answers for all of your questions, and a second chance to review the FDD.

The franchisors representative will ask you a lot of questions. The reason is to evaluate as to if you will fit in and be a successful franchise owner that will represent the franchisor’s brand well. After all, this is essentially a partnership one that will last from 7 to 15 years so answer carefully the questions presented.

Doing due dilegence

Due Diligence

Due diligence is when you dot all of your “I’s” and cross your “t’s”.

Once you reach this step, you should have a clear understanding of a variety of areas, such as the company’s industry, operations and support, and marketing.

Before you make a final decision, contact each franchise’s corporate office to conduct a complete evaluation so you know exactly what you’re getting into.

This is your decision so don’t buy all the hype, dig deep and get the details yourself.

Own Your Own Business vs Buy a Franchise?

There are advantages to both owning a franchise and owning your own business.

If you are looking for a business with a high success rate and brand recognition, then a franchise is ideal.

All franchises operate using a similar system, one that has proven great success many times.

As far as brand recognition is concerned, franchises are businesses that are ready from day one and waiting for you to take your place in the scheme of things.

If you’re ready to let explore with your creativity and experience professional freedom and growth, owning your own business is ideal.

If you’re a creative person, you can use your ideas to help make your business dreams a reality even if you buy a franchise.

Having your own business means you are your own boss, and you can work whenever you want. But you will find that being off means no money coming in so you have to plan off days very closely.

How Do Franchises Make Money?

Franchises make money a variety of ways. But primarily from profits generated from the business after cost and expenses are deducted from your revenue. I like to review my expenses and cost monthly to see if anything can be eliminated or if we need to market and generate more revenue.

Some money-making ways including having their businesses purchase certain products they can sell, such as soft drinks, as well as, other sideline items such as children’s toys. Even monetizing your website if you own one. Sometimes the franchisors control the website so that may or may not be an option. But you understand what I am saying

Before you jump into the franchising business, learn everything you can about this business, and understand that there is a process, and it will not be an overnight success.

On the other hand, franchising can be great for you if you’re willing to conduct the proper research and follow proper channels.

How Does Franchising Work?

How does franchising work? I will answer that question but be advised it’s a vast subject. One that I will cover in this post and future post.

A franchise is a contractual license to do business using the brand and operations of an existing franchisor (owner of the franchise company).

The franchisee (the person who purchases the franchise) becomes a partner with the franchisor. The franchisor/franchisee relationship is of utmost importance.

Owner Joanne by MTO Car

What Does a Franchise cost?

Usually, a franchisor charges you a franchise fee up front to help defer the cost of support he will need to give you for years to come. The fee can range from 0 to $250,000 or more.

The franchise will also pay a royalty for their use of the franchise assets. This can range from 0%-10% of total revenue payable weekly, monthly or yearly. The franchisee gets a proven system that has worked in the different locations and by different people.

It is hard work, but you will reach your goals a whole lot quicker and more times than not they are profitable in year one. How franchising works? Hard work equals profits.

Why wouldn’t it be better to go it alone?

After all, you are smart and can figure out how it works profitably, right? Well, honestly the franchisor has learned a lot and believe me when I tell you he knows the road to the promise land. He knows the answers to how does franchising work.

You, on the other hand, would have to start from square one and there is a reason most small businesses in America go belly up in less than 5 years. My wife and I took the long road and opened our own. That was 10 years ago.

Knowing what I know now I would definitely buy a franchise to start a business. Don’t believe me then read this article.

Sure, you would save money, but the marketing and sales know-how of the franchisor is worth every penny.

how does franchising work?

Where Do I Start if I Want to Franchise?

  1. Learn all you can about how franchising works. Subscribe to my blog on franchising for free and read all the books you can on the subject.
  2. Call a franchise broker. Get a list of brokers at some of the franchise broker associations.
  3. Check locally for Franchise Expos or marketing shows in your area. Attend because they are generally speaking very inexpensive, and you will learn a lot from attending.
  4. Check out the small business association (SBA) in your area and after looking at their website go visit them and ask questions about how franchising works.

Now you can sit down with your spouse, girlfriend, best friend or mom and tell them what you are considering. Then just listen. They will tell you everything that can go wrong, and these are all things you need to hear and consider before purchasing a franchise.

If you still are excited about franchising after all this work, then you are ready to talk with franchisors directly. Just remember the hard work doesn’t stop here.

Girl searching for a franchise

How to Find Franchises That You Are Interested in Pursuing.

First, I would look up franchises for sale in Google.

Believe me, you will find more than you will ever read about. So, I would suggest narrowing down your search to one industry such as the food industry.

Next pick a subset of the industry such as fast food, restaurants, catering, prepared foods, ethnic food etc. This will enable you to compare the different franchises to find one that will work for you.

Once you get a half dozen you are interested in sit down and try and make a list with your number one franchise first.

Next, go to their Franchise Opportunity site and fill out the contact form for more information.

This is important because before they can offer you a franchise they must get your personal information, a non-disclosure document signed and then you can talk to the owner to see if he shows any interest in you at that time.

The next step to get together with you and the owner and get you to sign a receipt for their Financial Disclosure Document (FDD).

The FDD is required by the Federal Trade Commission. This document is everything you need to know about the company’s franchise.

All the rules, financial documents and history of the franchise in writing. It is a complete and lengthy document.

The franchisor is required to wait 14 days after you receive the FDD before they can make an offer to purchase a franchise.

You see that is the basics for how franchising works. Stay tuned for more post on franchising.