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So You Want to Buy a Franchise? Here's What You Need to Know First

Franchising can be a great way to satisfy your entrepreneurial aspirations. When you join a franchise network you get the benefits of an established brand name, blueprint for running your business and support and guidance along the way. There are a variety of tools and resources available you can use to help research how to buy a franchise. But there are a few things you need to know before you dive in to ensure you don’t end up in over your head.

Industry and market conditions

When you buy a franchise, the overall health of the industry you choose, as well as local market conditions in general, are critical. When determining which franchise network to join, consider which sectors have a history of strong performance. Identify the industries that are growing and why. It’s important to be clear on what growth looks like for the brand as a whole.

Study your local market area. It’s important to evaluate the demand in your community for the products or services the franchise offers. Consider whether it’s long-term or part of a passing fad that will soon fizzle out and leave you on the hook with the franchisor.

Also, assess the competition in the area. Even a brand with national dominance could be trumped by a local favorite. Evaluate the competitive environment and think about how the unique selling proposition of any brand you’re considering stacks up.

Roles and responsibilities

Although every franchise system is different, the franchisor is typically responsible for developing the business concept, product or service, brand, logos/trademarks, systems and processes. Initial and ongoing training is usually provided, as well as marketing and advertising support.

As a franchisee, you should be prepared to take on hiring, firing and training staff, managing finances, selling the products or services and ensuring quality meets the brand standards. You will likely also spearhead local marketing and promotional activities.

The specific roles and responsibilities of each party are outlined in the Franchise Disclosure Document. Review it carefully to get a clear understanding of expectations, on both sides of the relationship.

Level of commitment and dedication required

When you buy a franchise you may get a turn-key business, but it’s not a passive investment. Owning a successful franchise takes work. Even though you may hire a manager to run your location and have a whole team of employees, no one else will care about the business as much as you do. It’s imperative for you to be actively engaged in all facets of running your business and constantly seek ways to improve.

Since you’re going to be involved day in and day out, it’s important to find a business you enjoy. It will be much easier to stay enthusiastic and motivated for the long haul if you love what you do.

No matter what industry you choose, hard work and dedication are required. The best franchisees understand and accept that fact and are willing to do whatever it takes to get the job done.

Amount and type of training and support provided

Ensuring all owners within the network understand how the business is supposed to operate is critical to the success of both the franchisee and franchisor. The amount and type of training varies greatly depending on the industry and the complexity of the business. More sophisticated brands provide extensive training to teach their franchisees everything they need to know to be comfortable operating their business before they ever even open their doors.

When exploring the training provided, determine who is eligible (i.e., only certain levels of staff or all employees), how long it will take, what it will cost and who will pay for it. Also gather some background on who will be conducting the training and their qualifications or level of expertise.

Brands that truly believe in investing in your success will provide ongoing support and guidance as well. Spend some time researching what resources will be available once the initial training is complete and you’re open for business.

All costs

The cost to buy a franchise is typically less than startup costs to launch your own business. That said, it’s still important to have a clear understanding of all initial and recurring fees and expenses.

The franchise fee is a one-time, upfront cost of entry that grants you the license to own and operate the franchise business. Keep in mind you may also incur costs for real estate, inventory, equipment, insurance, business licenses, signage, etc. Once open, royalties and advertising fees kick in. Royalty fees are often based on a percentage of your revenue and are paid to the franchisor at regular intervals. Advertising fees are contributed to a collective pool of funds used to market the brand.

Although it may seem like a barrage of fees, one of the advantages of joining a franchise network is knowing what the startup and future costs will be.

While there is typically less risk associated with opening a franchise than building a business from the ground up, success is not guaranteed. It’s important to take the time to thoroughly research the opportunity before signing on the dotted line.