3 Things to Consider Before Buying a Franchise (and Hate your Decision for it)

When it comes to starting a small business, people find franchise opportunities as one of the easiest and most lucrative options they can start with. But franchise business is not for everyone. It’s not always guaranteed that if someone is successful in taking a franchise, you will be that successful in buying the same franchise. I know this fact first hand.

Buying a franchise

More than a decade ago, I was a franchisee of a leading business service franchise. I was interested in this particular franchise because I believe that the growth potential is there. Many successful existing franchisees ready to vouch for that, and I was actually a loyal customer of that particular franchise unit in a local area. I thought that buying a franchise was a lucrative business decision – a sound operational manual, an experienced franchisor, and a trend to ride.

I decided to have a go and bought a license to the franchise; It was a successful 12-month run, I decided to buy another license for a different area. The second unit was okay, but the reality hits: Enter the recession.

Long story short, I eventually closed the second unit and sold the first one (just for the asset value.) Lessons learned: You can’t beat recession with just funds to invest with. You need knowledge and experience to navigate your franchise units through challenges.

So, if you plan to start your own business by taking a franchise then make sure you understand that there are many things you should consider. Pondering upon those points will give the idea of whether you will be able to run this franchise business successfully or not.

I’d recommend for you to follow these simple things before you sign the franchise agreement and regret it later. Read on.


3 Important Things to Consider Before Buying a Franchise

Just focus on all these 3 important points and then decide whether the franchises you’re interested in can meet all your expectations.

1. Knowledge about the product

Although the franchise business is well established & their brand is popular enough to drive your customers but if you don’t have much knowledge about their products, it’s difficult for you to grow your business. You have to dully depend on your franchisor to promote your business. There won’t be any room for you to grow your own business because of a lack of your knowledge.

So, if you are interested in a particular franchise, the first step is to know everything related to the products. You need to develop your interest in the product. You must know about the demand for this product in your area where you take the franchise, the quality of the product your franchisor provides, and if there is any competitor, and what quality & price your competitor offer.

2. Cost to start the business

Obviously, the cost will be higher in starting a franchise business as compared to that if you would start the business on your own. A franchisor has already invested lots of money in establishing the brand and now they have a proven business model. You have a low risk of failure in a franchising model.

Here are some of the expenses you have to pay to set up your franchise business:

  • Refundable / non-refundable franchise fee.
  • Expenses towards taking a commercial place on rent & then for its interior.
  • Buying stocks and supplies from the franchisor.
  • Hiring the staff.
  • Monthly royalty to the franchisor.
  • …and many other expenses that are inevitable.

So after doing your complete homework towards the expenses, you have to find out how you are going to manage this cost.

  • Does this budget suit you?
  • If yes, then which are the sources of finding the investment?
  • Are you going to take the business loan or you will invest in your own money?
  • If you need a loan then are you eligible for that? How much should you pay each month?

Consider every factor that can affect your future & evaluate the chances of success or failure.

learning about a franchisor

3. Know everything about your franchisor

This is the most important point to consider before taking any franchise. There are many things that you need to know about your franchisor which will be useful to decide your success in the business.

  • How old is your franchisor’s business?
  • How popular is the brand?
  • How demanding is his product?
  • Is your franchisor financially stable?
  • What is his plan to grow his overall business & especially your business?
  • How franchisor makes money? How much is the royalty payment & how much profit you make from his business?
  • Who are the failing franchisees and what was the reason for their failure?
  • Is your franchisor going  to allocate another franchise in your area or you will be the only franchisee?
  • Is your franchisor actively promoting in places like a franchise directory, forums, social media, etc.?
  • What are the terms in the franchise agreement like?
  • …and so on.

To Conclude…

Even after doing all the things, you can’t be 100% sure of the success. There is no business without any risk. The only thing you can do is minimize the risk, and enjoy the ride.