Three Things You Should Know Before Buying a Business Franchise
Are you considering purchasing a franchise? Before you do, there are three things that you should know.
1) The Franchise You Want May Not Be Available in Your Area
- Some franchises are only available in certain territories, such as Saudi Arabia or Mainland China. Make sure the one you want is actually for sale before impulsively moving to start your career in a brand new city.
2) You Probably Won't Be Able to Start Your Job At Day One - There will be some training required, and it might take up to six months before you're actually working on your own territory.
- Unless you want to get a job in your field - and a bad one at that - you should be prepared to have some extra time on your hands.
- You shouldn't rely on the income from the franchise until you are actually at work.
- Some franchises might require that you start with a short probationary period before hiring.
3) You Won't Be Getting A Bargain .
Franchises aren't cheap, even for smaller locations like gas stations or coffee shops. In general, expect to spend at least $100,000 in the first year and $250,000 or more over the long term . Don't forget to factor in the cost of your headquarters .
In addition, you'll have to pay an annual royalty fee for the right to use the brand name. This is usually figured as a percentage of your total gross income, so it has the potential to add up quickly!
Don't forget about other fees, either. You may have to pay an initiation fee, a transfer fee and vendor fees.
There's also a possibility that you'll need more working capital than expected . The franchisee who owned the business before you may have left behind some debts that you are now responsible for paying off .
I once joined a franchise and discovered that I had inherited several thousand dollars of debt from the previous owner. Ouch.
Overall, a franchise isn't a bad way to get started in business. But it's not the easy or cheap way to do it either.
So make sure you're ready for what you sign up for before you make your purchase!
- Chad Sakac is the founder and CEO of LegalStory . He is on a mission to make legal education better, more relevant and more affordable. If you have a law related question that you'd like answered, he'd love to hear from you at [email protected] or visit www.legalsstory.com . Follow him on Twitter @chadsakac .
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Conclusion
Franchising offers a unique opportunity for entrepreneurs. Many different companies are offering franchise opportunities, so it is important to do the due diligence before making a decision. In general franchising can be profitable but it isn't any easier than starting your own business from scratch.
The most important thing is to know what you are getting into before you start. Once armed with this information and more importantly your own research, you'll be on your way to picking the right franchise for you .