Considerations to make before Purchasing

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Considerations to make before Purchasing

While purchasing a franchise company comes with lower risks and potentially higher rewards than opening your own start up company that simply does not mean that the decision should be taken lightly. There are dozens of questions that should be asked; about your personal finances, whether or not you are fit to own a franchise, in determining what type of franchise to buy or whether or not to buy into a particular franchise. These questions have been broken up into relevant categories for easier browsing.

Personal Questions and Considerations

  • Are both you and your spouse going to be physically capable of handling all of the strain that will come from operating a franchise business? Are you prepared for endless hours and tedious administrative tasks?
  • Will any members of your family suffer if you are absent for long periods of time while working to build up your business?
  • Are you prepared to give up some or all of your independence of action in exchange for whatever advantage is offered by the franchise?
  • Do you and your spouse both enjoy working with other people?
  • Do you believe that you possess the abilities necessary to work profitably and smoothly both with your franchisor and your employees in order to please your customers?
  • Do you or your spouse have any previous business experience which will better qualify you for whatever type of franchise you are looking to purchase?
  • Do you have someone in mind who could take your place if you were ever unable to continue your duties as the owner of a franchise?
  • Have you conducted any form of independent research relating to the industry that you plan to enter into?
  • Have you properly researched the background and the experience of whatever franchisor you have your heart set on working with?
  • Do you have a basic idea of what the market will be like for your particular service or product in one, five, or even ten years?
  • Have you done any research relating to the competition that already exists for whatever product or service you will be selling? What competition exists in your territory already, both from franchise businesses and from non-franchise businesses?
  • How easily can you find a business-oriented and experienced franchise attorney who will be able to properly evaluate whatever franchise contract is currently being considered?

Financial Questions and Considerations

  • Have you already discussed your idea of buying a franchise with your spouse and other important family members? Is everyone in complete agreement regarding the decision?
  • Do you already have all the financial resources that are required in order to purchase a franchise? If you do not, do you know where you will obtain the required capital?
  • Are you ready to make the necessary sacrifices of money and time in order to successfully operate a new franchise?
  • Have you taken the time to put together a thoroughly written balance sheet that outlines your assets and liabilities and any cash resources that you may hold?
  • Do you understand that your business will probably not break even during the first year of operation? Very few businesses manage to break even before the first year. You need to be prepared for this very real truth.
  • Will both you and your spouse work in the franchise, or will one of you remain employed in your current occupation at least until the franchise is making a profit?
  • Do you have additional sources for financing, including family members or friends who may be willing and able to lend money in case your initial start up financing is not enough?

Questions Relating to the Franchise Itself

  • Are you satisfied with the franchisor and the profitability of the franchise itself?
  • Are you selling products or services with the quality that you would expect from them?
  • Are you receiving an adequate number of goods delivered from the franchisor?
  • How long do you expect it to take before you are able to break even after purchasing the franchise?
  • Will the training and support that is provided by the franchisor be adequate to prepare you for your duties as the owner of a franchise? Will you need additional training after your franchisor has completed your initial training? Will on going support be provided?
  • Is the owner of the franchising system both fair, and easy to work with? If not, do you really want to work for a franchise owner who is unfair, or who is difficult for you to relate to and work with?
  • How do you plan to settle any disputes that occur between you and the owner of the franchise system?
  • Has the franchisor ever had trouble with franchisees or other business contacts that you know of? How does the nature of those problems affect you?
  • Are you satisfied with the level of marketing and promotional support that the franchisor is offering to you? Do you feel that there are areas in which the support could be improved?
  • Has the franchisor offered you any information relating to actual, average or forecasted profits, sales or earnings at any point? What information have you been given?
  • Does the franchisor have a reputation that represents honesty and fairness when dealing with other franchisees?

Other Questions Worth Asking

  • Have you done your research regarding the firm that is offering you a franchise opportunity? How long have they been in business, and what is their reputation and track record of service like?
  • What is the total amount of the investment that the franchisor is requiring for you in order to purchase a franchise? Is this a fair amount in your opinion? Is everything covered in the investment that is requested of you?
  • How are the initial franchising fees used by the franchisor? Do they go to the materials and advertising that you will be using, or do they appear to be going to unknown sources? A good franchise will use a large portion of your initial franchising fees to get your franchise operating, rather than to pad their pockets.
  • How much training is the franchisor going to provide for you? Is this amount adequate enough to allow you to do your job?
  • What are your obligations relating to purchasing or leasing services and products from designated sources or directly from the franchisor?
  • What are the terms of your franchising agreement regarding termination of the franchise contract, modification of said contract, or renewal?
  • Can you terminate the franchising agreement under any circumstances? If so, under what circumstances is this possible?
  • Do you have specific obligations relating to the purchasing or leasing of services or goods in accordance with specifications set forth by the franchisor?
  • If you do decide to cancel a franchising agreement, are there costs involved? Will you receive any good faith or goodwill compensation for your work with the franchise?
  • What is the track record like for your franchisor? Has he or she proven themselves to be reliable, trustworthy and fair?
  • How successful is the franchise system operation so far? Do outside research in addition to what is provided by the franchisor for the best information.
  • Exactly what is it that your franchisor can do for you that you simply cannot do for yourself?
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