Basics of Buying a Franchise Business

  • One of the main benefits that comes with owning a franchise is overall brand awareness.
  • The process of buying a franchise starts when you, the franchisee, pays a fee and royalties to the franchisor.
  • One thing you do need to keep in mind when buying a franchise is that it has certain standards and guidelines that you will be pressured to uphold.

Buying a franchise business is a great way to invest your money if you can afford it. The benefit to a franchise is that you aren’t starting a completely new business from scratch and you aren’t buying an entire established business either. Owning a franchise is a nice middle ground, since you do have some established aspects of the business but you aren’t in charge of everything at once. You are a partner to the franchisor who helps your franchise become successful along the way.

The initial fee that you pay to the franchise is determined by how profitable the business is.

The process

The process of buying a franchise starts when you, the franchisee, pays a fee and royalties to the franchisor. This allows the franchisee to use the franchises trademark, receive support, and have access to the system in place by the franchisor. The nice thing about a franchise business is that there is a history of what has and has not worked. When you buy a franchise, you receive a full background of the company, how it works, and what to expect. Think of it as an orientation. This is a great way to cut down on the mistakes that so many entrepreneurs encounter when launching a new business.

The initial fee that you pay to the franchise is determined by how profitable the business is. This might range from a few thousand dollars to upwards of $100,000, it really just depends on the specific business. The aforementioned royalty fee is usually between 2 to 10 percent but can also be a specific amount per month.

There may be a few other costs to getting started. This means the possibility of having to purchase a building or land. It is important to be clear and transparent with the franchisor here. Equipment is another cost to keep in mind when you’re starting up a franchise. There is also a necessity to have some working capital available in order to pay employees and keep you functioning in the beginning of your venture.

Another thing to consider is that you will need to sign some legal documents. The franchisor is obligated to give you a wide array of information upfront before you sign off on your purchase. There may be some specific forms required by the state that need to be filled out, depending on the type of business you’re involved in.

With this purchase, you receive what is essentially your own in-house research and development team. The franchisor is the one to worry about market data, what the competition is doing, and what products work best.

The franchisor is the one to worry about market data, what the competition is doing, and what products work best.

Benefits

When you buy a franchise business, you join other likeminded people to create a larger coalition that benefits your overall operations. This means you might receive products at a cheaper rate, get better locations and have more advertising. Essentially, you have more resources to begin with if you purchase a franchise than if you start your own business.

One of the main benefits that comes with owning a franchise is overall brand awareness. Customers have a pretty good idea of what to expect when it comes to your business, and this will also help you to better serve them. It is also much easier to own and open multiple locations if you are operating successfully.

One thing you do need to keep in mind when buying a franchise is that it has certain standards and guidelines that you will be pressured to uphold. As an already established business, there is a certain expectation that your franchise will be judged upon. This is not the kind of business that is really “open for interpretation” so to speak. You are required to do your due diligence to work with the franchisor in as positive of a manner as possible so that all operational requirements are achieved. Finally, if the company has a snag or problem, it will inevitably have an effect on you too.

Keep all of these basic things in mind if you have an interest in making this kind of purchase. Resources like Entrepreneur and Forbes have great insights into this as well.

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Abby Drexler

Abby Drexler is a contributing writer and media specialist. She graduated from the University of Tennessee with a major in Public Relations.

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