Authored by Stephanie Mojica in Business
Published on 02-09-2009
Buying a franchise can be one of the best business investments an entrepreneur can make. However, as with any corporate transaction, there is risk of failure. There are many tips when purchasing a franchise that can help minimize the risk and maximize profit for potential business owners.
One of the advantages of a franchise is you are buying a location or branch of an already established and successful business system. Many franchises are restaurants, though it is also possible to license one of an existing product and get the right to sell it to the public.
One of the best tips when purchasing a franchise is to realize it is not for everybody. People who are more of independent thinkers and want to apply these ideals to a business model will likely not be happy running a franchise. Franchise contracts, such as those to open a Dunkin Donuts location, are extremely specific. You must be willing to run things the corporation owner’s way. You may be required to use only certain vendors and recipes, in the event of a franchised restaurant. The franchise owner could even dictate your days and hours of operation and number of employees you hire. You will likely be subject to corporate inspections, in addition to the typical business quality visits from local agencies such as the health department. If you are happy trying to run an already-successful business model in a pre-determined way, and do not mind the loss of independence for the convenience of a potential profit, then you will probably be happy with a franchised business. However, keep in mind that violating even a small point in a franchise contract could lead to your inability to use the business name, effectively rendering your other financial investments on your new company useless.
Another one of the tips when purchasing a franchise is to remember you are still going to be responsible for the expenses associated with buying or renting a business location, purchasing or leasing equipment, and paying vendors and employees. Though you may be eligible to get business or personal credit for such transactions, having a good amount of starting cash capital is always a prudent idea when starting any kind of new business venture.
There are several tips when purchasing a franchise that apply to where you can find business owners willing to license their company or product to you on a limited, specific basis. Many franchisors have information on their web sites about getting involved in their business as a franchise owner. There are also franchise expositions that match a number of vendors with potential business owners. In addition, you could link up with a franchise broker and try to find the ideal opportunity for your personality, profit goals, and budget.
Owning a franchise can be one of the most rewarding ventures an entrepreneur can undertake, but going through any contract carefully – perhaps even with a qualified business attorney – is always a good idea. Before signing any contract, always read a copy of the franchisor’s disclosure document.