subject: 5 Things You Should Consider In Franchise Buying [print this page] 5 Things You Should Consider In Franchise Buying
When considering franchise buying, there's a lot of factors that are involved. While the process is regulated by the FTC and is very serious, it's also a great time to enjoy the process of being an entrepreneur and having complete control over your own destiny.
Someone who's new to the franchise industry can easily be overwhelmed by all the choices of franchises that are available. If you can think of it, there's probably a franchise that exists today for that business. So when evaluating all your choices, keep these 5 things in mind when franchise buying.
1. Find a franchise you are passionate about - Bottom line is this is the most important thing to consider. If your dream is to have nights and weekends off and you want to spend that time with your kids and family, don't choose a franchise that requires heavy night schedules or weekends as the primary source of your business. Whatever your passion is and whatever your values are, stick with that. If you don't, you will seriously reduce your chances of success.
2. What are the costs of entry? - Franchises can start in the low 5 figures and go all the way to a few million dollars. Look at a McDonald's franchise. Obviously the lower cost franchises can put you in a profitable position quicker, but not always. The other costs to entry that you must know are the brick and mortar costs, leasing equipment, inventory, fixed costs, variable costs, etc. If you can work from home in your franchise, that could be a huge savings right from the start.
3. What is the royalty structure in franchise buying? - Typically the royalties are calculated off the gross revenues and not the net income. You must know what the royalties are because you are paying the royalties before you pay any mortgage, inventory, wages, etc. A bad structure can really hinder your chances at success.
4. What are the territory restrictions? - There is always some sort of territory restriction with a franchise. Some are local to zip codes, cities, maybe counties and some have the whole US at their fingertips. What's unique about online franchises is that they usually have no territory restrictions. Do your due diligence on the territory restrictions in franchise buying and negotiate for the best possible terms.
5. Is the franchise scalable? - Most franchises are NOT scalable which might come as a shock to you. That means that owning just 1 franchise will most likely not get you to the income levels you're looking for. Think about this... if a franchise in a physical location is open 24/7, it can still only handle a certain amount of customers and make a certain amount of money. It's limited.
The final thing to consider on top of the 5 items above is the leadership of the franchise. Is the leadership truly committed to the success of it's franchisee's or are they really out to 'fatten' their own wallets. Look at the history of the company and do your due diligence on the leadership. Bottom line is that franchise buying is part of the American Dream we all want, just make sure you do your due diligence and make the best decision for you and your family.
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