About Buying a Franchise
- Purchasing a franchise allows the sale of goods and services of an already established name. Often a franchiser will supply the franchisee with training and support over the life of the franchise. Buying a franchise allows a prospective business owner to streamline startup costs and get a business venture going quickly.
- There are no secret methods to figuring out the exact startup cost for a prospective venture. However, an educated estimate can be reached by considering all cost factors of startup. Identify expenses that are one-time costs, such as the franchise tag, a building remodel and a sign for the building. Then identify ongoing costs, such as a building lease, insurance, utilities, and inventory. Determine whether these expenses are essential or optional. Only essential costs should be included in the final estimate.
Once essential costs are determined, divide into fixed (overhead) expenses and variable (related to business sales) expenses. Overhead will include monthly rent, utilities, and administrative and insurance costs while variable costs will include inventory, shipping and packing costs, sales commissions, and other costs associated with the direct sale of a product or service.
Once these factors have been laid out, immediate cost and future cost can be effectively considered. If cost is too much, drop the franchise. If cost is doable, move on to investigation. - Always investigate and do cost, risk, and personal assessment analysis before buying a franchise. Build the ideal franchise by keeping in mind how much to invest and risk, the prospective industry, and personal skills and qualifications. Request a "uniform offering circular" which contains important details about the franchise's legal, financial, and personnel history.
Attending an exposition will allow franchise-comparison, which is the process for separating the applicable from the not-so-applicable franchises. Know what an ideal franchise looks like and always ask questions, such as "What management, technical, and ongoing assistance does the franchise offer?" or "What controls does the franchise impose?" Be prepared to walk away if a prospective franchise does not meet personal standards or requirements. - All business ventures carry a risk of failure, but franchises also carry a different set of possible pitfalls. Often, the franchisee is subject to sales quotas, purchasing equipment, supplies, and inventory from the franchiser, and faces the risk of possible termination due to failure to operate the business according to the agreement. Though the franchiser will benefit more from the contract, a franchisee can run a successful business by knowing and understanding the terms of agreement.
- Seek professional help when tackling the tax laws of franchises. An attorney or specialist in franchise law should be contacted to evaluate the franchise package and tax considerations and to determine the full costs of purchasing and running the business and assess the potential profit to the franchisee, according to the Small Business Administration.