How to Purchase a Franchise: The Pros, Cons, and Costs

How to purchase a franchise

Starting a business is a big risk, there’s no guarantee that your products or services will fly off the shelves and be well-loved by others. For most entrepreneurs, there’s no difference between gambling and establishing your own trade; both require you to lay your odds and hope for the best. But for some, there’s a key solution to avoid business risks and challenges – a franchise.

Franchising is a great option for those who want to start their own business but don’t like the idea of taking on so much risk. Equipped with a well-established system, a reliable business model, a developed brand, and easy access to resources, they offer a higher success rate than those starting from scratch. But, even this well-secured business model has its own share of disadvantages. It might seem easy at first but there’s more to learn with franchising than just putting your money in the table.

How do you buy a franchise?

There may be tons of franchising opportunities out there but not all of them will be the right fit for your investment. When buying a franchise, make sure to do your own research and find the business that fits your needs, wants, and financial requirements. Likewise, consider your personal interest with regards to the product or service. Do you really like what they are offering? Are you going to use it yourself? Do you believe in the company’s mission and vision?

After you have found the perfect fit, it’s time to review the requirements. Just because you have the money doesn’t mean you can easily franchise a business. Aside from the financial condition, franchisors typically set minimum requirements to ensure that all are qualified in terms of skills and experience. Depending on the business, your credit score, income, liquid assets, and knowledge will be assessed. Also, the IFA or International Franchise Association will typically ask you to:

  • Be at least 35 to 55 years old with an average income of $60,00 or higher.
  • Have a minimum net worth of $250,000 with corporate management experience.
  • Have an IRA or 401K retirement plan and not owned a business before.

A proven system

One of the biggest advantages of owning a franchise is that you have a reliable, secure, and well-established system. Many entrepreneurs are afraid to start their own business due to the risks, uncertainties, and challenges they will face, which are all understandable. With franchising opportunities, years of research and development have already perfected the brand. The franchisor has been through everything to find what works best, so you don’t have to undergo this laborious process.

Along with this comes name recognition which is important for a successful business. Building brand awareness is the heart and soul of every company, but they don’t come cheap. Campaigns cost hundreds of dollars and the duration varies from weeks up to several months. But with a franchise, you’ll have an advantage because:

  • All the legwork, trials, and errors have been done for you.
  • Customers already know your products as well as services.
  • You will benefit from the collective purchasing power of the brand.

Training and support

Another advantage of owning a franchise is the paramount training and high level of support you will get from the franchisor. Running your own business is good but should a problem arises, you don’t have an expert readily available by your side to mitigate the situation. What if a patron had a problem with your product? What if there is a customer complaint? How about issues with filing permits and certificates? Or problems with the business operation?

With franchise businesses, you don’t have to worry about support, someone is always there to help solve a problem. Likewise, training is provided right from the start. Workers are employed following a hiring protocol to ensure the best staff. Generally, franchisors offer all kinds of support from pre-opening to ongoing operations:

  • They offer support for site selection, business design, construction, and finances.
  • They give assistance for training, operations, supervision, and management.
  • They extend a helping hand to expedite business marketing and advertisement.

Buying a franchise is not cheap

While franchising offers a secure and well-established business, not everything about this trading practice is amazing. If there is one major disadvantage of owning a franchise, it would be none other than the cost. This is the part most entrepreneurs find difficult to get through. Buying a franchise requires a huge financial investment, the two major expenses being the startup costs and ongoing fees. Startup cost varies depending on the business but the majority of them requires a big investment. Then comes the ongoing fees that you need to pay such as royalties and advertising expenses. Although you will surely benefit from these overheads, it will cut through your profits.

  • Always determine the total investment required including all expenses.
  • Ask if the startup fee includes lease improvements, inventory, equipment, etc.
  • Include the ongoing cost on top of your regular expenses to avoid delays.

You’re really not the boss

Yes, you have your own business, you are the one who manages it, but you do not directly run it. When it comes to buying a franchise business, there are certain rules and regulations that must be conformed to avoid contract termination. Operations are followed according to what is set in your contract, and decisions are made based on the franchisor with little to no leeway on your part. If you want a business that is run according to your own terms, then franchising opportunities are not for you.

There are procedures, restrictions, agreements, and protocols dictated by the franchisor. This includes pricing, suppliers, business location, services, products, etc. And you can’t simply terminate the contract since there is a lock-in period ranging from five to twenty years. Remember to:

  • Cautiously review your franchise agreement contract and business terms.
  • Think before you sign, terminating a contract will result in an expensive and long legal battle.

Just like any other businesses, franchising has its fair share of good and bad points. You are not exempted from operational losses, financial obligations, and risky opportunities. Before deciding whether or not you’ll take on a franchise or start your own business, carefully evaluate pros and cons to lock in your success.


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