Buying a franchise can be a good way for a budding entrepreneur to get started in business. A franchise provides a proven business model to follow, which can eliminate some of the pitfalls normally associated with a start-up operation. But what should you look for in a potential franchise? Your answers to a few basic questions should provide you with some guidance.
Where Are the Others Located?
Find out the locations of the nearest franchises in the chain to determine how close you'll be. Depending on the business, you may be competing with other similar companies, so you don't need to be competing with another company store as well. You'll also want to know what territorial rights you have regarding adding more units in the future.
What Assistance Will the Franchisor Provide?
Franchisors typically provide assistance to the franchisee. This can include helping to obtain financing, training managers and employees and offering marketing support. Be sure to ask the franchisor about the specifics of any help you'll receive so there are no unwanted surprises down the road. Any assistance the franchisor agrees to provide should be spelled out in the written franchise agreement.
What Are the Costs?
When you operate a franchise, you can expect to pay a percentage of your gross sales to the franchisor in the form of royalties, as well as an initial fee to acquire the franchise. Ask the franchisor about the amount of the fees, as well as any additional costs such as marketing expenses or licensing fees.
How Long Until I Make Money?
Part of your business plan should include a projection of a break-even point, after which you'll begin to make money. In addition to your own calculations, talk to other franchisees of your business to see how long it took them to become profitable. If you project a range, such as one to three years, figure on the high end of the range to be on the safe side.
How Much Can I Really Make?
Your franchisor may throw around exorbitant potential income figures to entice you to take the franchise plunge. To get a real-world idea of how much money you can expect to make, talk to other franchisees in similar markets. You'll also need to assess factors such as the amount of competition in your area.