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7 Crucial Things to Consider Before Buying a Franchise Business

Things to Consider Before Buying a Franchise Business
Even the best business opportunity, does not come with a guarantee tag that it might work. Therefore an entrepreneur's best defense is to collect all possible information before starting a business. And buying a franchise business is no exception to this rule.
BusinessZeal Staff
Last Updated: Feb 27, 2018
Today, literally, thousands of franchise operations exist, and many people are willing to pay a significant sum to get a franchise because, it offers a chance to experience what business is all about and fulfills their dream of minting money. No doubt, the rewards in such a business are plentiful; however the amount of hard work and the learning curve is equally immense. Firstly, buying a franchise is not an easy task, since a significant amount has to be invested to start the business. Therefore, it is important to do your homework properly, which means knowing the pros and cons of the business, conducting a research to know the success rate of a franchise, learning the basics of the business. More importantly you should know exactly where the money is being invested and check if the returns are satisfying.
Track record of the company/franchisor
The first and the foremost task is to study the track record or the business history of the franchisor, from whom you wish to buy the franchise. It is important for you to check whether the infrastructure of the franchisor is comprehensive and stable. To put it in simple words, when you invest in any kind of shares, you definitely check/verify the company's track record. You check if its share price has being fluctuating, or has remained stable over a period of time, and only then trade in those particular shares. In the same way, when you buy a franchise, you are actually investing in that particular company, hence extract as much information about the company as possible.
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Amount to be invested
All franchise businesses require a significant initial fee. Are you ready for the same? It is important for you to match the amount of funding with the costs of franchise you're considering to buy. Since there is no guarantee that the business plan may click, you have to be ready to raise sufficient amount of money, if the need arises, apart from the initial capital. This is because you are required to bear the advertising costs, pay royalty, insurances, taxes, even if your sales fall below expectation. Therefore, it is important you consider your financial strength before buying any business.
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Don't get carried away
As discussed earlier, buying a franchise involves significant investment. Some franchisors present exaggerated sale statements. Hence, take every promise with a pinch of salt and make sure you scrutinize all such magnified statements. Demand for hard data and look into financial projections, with utmost care and a critical eye. This will help you select the best amongst all the franchisee businesses available. Do not go in for any exotic franchise because it is hyped, look for what they have in store for you.
The brand and quality of products
It is important to know which industries or services interest you. A prior or basic knowledge about the same may help in managing your franchise properly. Take time to zero down on products or services that attract you. Another aspect you ought to consider, before buying a franchise, is the brand value or goodwill of that particular product or service. Brand value of the product or service will help you judge its popularity, and thus is indicative of its demand.
The rules and regulations of the franchise
Every franchisor has different rules and regulations that govern the franchise business you buy from them. Review the agreement proposed by the franchisor, check if it is acceptable or in accordance with your policy. In case you want to make changes or add other clauses, discuss it with the franchisor. If you do not understand the technicalities of the law, make sure you review it with an independent lawyer, who specializes in the same. You also need to verify, if there are restrictions on purchases of goods or services from a particular vendor only, or if you are restricted from associating with any independent trade association formed by other franchisees. Find out how much training and ongoing support you will receive from the parent company. The point is to acquaint yourself with all the rules of the company and negotiate some, if possible, according to your preference, so as not to regret anything in future.
Relationship with the current franchisees
This is considered as one of the most important aspect to look for when one buys a franchise business. Since among the franchise businesses that have failed, the most common reason is a souring of relations between the franchisors and franchisees. Find out the kind of relation the current franchisees and the franchisor share. Check how many franchisees have failed in a year, and try to find the cause of the same. The bottom line is, you need to have some idea of the turnover rate of the franchisees, in order to evaluate where you would be standing down the line.
Market survey
This aspect is important to ascertain the returns on your investments, in short, to evaluate your profit. You need to understand what the public prefers, as regards to services or products and cater to their needs accordingly. The more you're successful in learning the art of understanding the market and the competition around, the more tactfully you will be able to serve the public and please them. This in turn will increase your sales and thus, your profits. It is important for you to make sure that there is a demand for the intended business.
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Educate yourself thoroughly before plunging into this business. If the franchisor is well established and famous, you will have to strive to maintain their goodwill, in any other case you may have to struggle to introduce it to the market. Therefore, take all efforts to do a complete research, check for all precautionary measures and then reap the benefits of your hard work.
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