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10 Questions to Ask Before Buying a Franchise

May 22, 2018
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Questions to Ask Before Buying a Franchise
Many Americans dream of being wealthy, being their own boss, and having the freedom to live the lifestyle they choose. Unfortunately, we have been conditioned to believe that dreaming is a loser's game and never pays off. That couldn't be further from the truth. One of the fastest roads to financial security and the freedom to do the things in life you want to do is through a business model called franchising. When you buy a franchise, you're licensing the right to use an established company's trademark, products, and operating procedures as your own, making it easier and faster for you to get into a profitable business of your own using an established company's reputation and resources as a starting point. This is a great business model that allows anyone with start-up capital to begin their pursuit of the American dream. Before you get excited and run out to buy a franchise, you should know a little about what you're getting into. Here are 10 questions to ask before buying a franchise.

  1. Is a franchise right for me?

    Only you can answer this question. A lot of factors go into answering the question. Do you have a way to finance the start-up cost of getting into a franchise, do you have the time and determination to run a business that will require a lot of both, and can you make a commitment to success? A lot goes into running a business and making it succeed. The payoff can be rewarding if you're ready to work at it. If you have a family, discussing it with them before making a decision is a good idea. You'll need their support.

  2. Considering a Franchise
  3. How much will it cost to start doing business?

    The cost to purchase a franchise business can vary greatly. Depending upon the type of franchise you buy, you could spend anywhere from thousands to more than a million. Securing the finances to start a franchise will be one of your first concerns. Ask about other costs as well. There are often additional fees associated with buying a franchise. You can find those fees in the franchise disclosure document (FDD), but still ask about them and discuss them beforehand. Ask if the franchisor assists with financing. According to an Entrepreneur article, "7 Ways Franchises Help Franchisees Obtain Financing," checking to see if the franchise you wish to buy is a member of the Small business Administration registry is a good place to start. The article states that when a franchise joins the SBA registry, their franchise agreement is approved for all of their franchisees, which reduces the time and increases the efficiency loan requests made through the Franchise registry are processed. There are a number of other ways a franchisor might assist with financing, so always ask about options.

  4. Purchasing a Franchise
  5. What are the ongoing fees associated with my franchise business?

    This is a good question to ask in addition to the start-up cost to buy the franchise. Ongoing fees or "hidden costs" can include training fees, equipment fees, and royalties or a percentage of sales. These ongoing fees can add up pretty quick, and they can be substantial. You can also find these fees in the FDD.

  6. Are there company-owned stores in the franchise?

    Some franchisors operate solely as a franchise option and some have a mix of franchise stores and stores owned by the corporation. Why does it matter? While most research shows that a mix of franchised stores and company owned stores is good for business, some franchisees believe company-owned stores can be bad for business too. The argument is that company-owned stores get preferential treatment, better prices, and access to more advertising and greater resources. Franchisees consider this an unfair advantage that leaves them competing against not only other competitors, but their own brand as well. If you are going to buy a franchise that mixes company-owned stores with franchised stores, be sure to explore how the dynamics of that situation work before making a decision. The argument for or against company-owned stores can go either way, so make the conversation thorough and get the answers you feel most comfortable with.

  7. Will my franchise have its own territory?

    If you open a food chain franchise, you'll obviously be competing against other food chains, but it's important that you aren't competing against another franchise bearing the same brand as yours. Most companies give territories to franchisees and space stores out accordingly. This makes good sense for the franchisor and the franchisee. Not all companies are created equal, however, and some franchisors don't see the value in not pitting their franchises against each other. Avoid a franchise that doesn't give you protected territory.

  8. Franchises with Protected Territory
  9. Who owns the trademark and other intellectual property?

    Why is this question one of the 10 questions to ask before buying a franchise? It's important you know up front that you do not own the trademark or other intellectual property associated with a brand. You are only licensing the right to use it in conjunction with the franchise you're buying into, and you will be limited in the ways you'll be able to use that intellectual property. Knowing who holds the trademarks and copyrights can help direct you through the proper channels when you have questions regarding use of the intellectual property. The corporation may have some control over the use of trademarks, but the actual owner of those trademarks might be another corporation or even an individual.

  10. What values and goals do you have for the brand?

    You might initially think this is none of your business, but it's actually very much your business. You are buying into the franchise and putting your reputation on the back of the brand's reputation. Corporations have political, social, and moral personalities in the same way individuals do. In many cases, the franchisor may hold different views and values than you do, and since you will be representing their brand, you could be expected to operate along the same standards. If you don't feel a corporation holds to the same set of principles you do, you may not be able to effectively work with the brand.

  11. How much money will I make a year with this franchise?

    This is an important question. Unfortunately, there isn't a straight answer. The franchisor will likely shoot you figures based on average sales of other franchises, but they will never guarantee you a figure. That could lead to lawsuits when those promises weren't met. Your best bet is to speak to other franchise owners and do the math yourself. This still won't guarantee you a solid answer, but you may be able to get a good ballpark figure.

  12. Can my franchise contract be terminated?

    In most cases, you will not need to worry about a franchisor terminating your franchise agreement unless there is a serious violation of the terms. A franchise agreement is a contract meant to be honored. You can, however, lose the right to the franchise under specific circumstances, usually outlined up front. That's why this question should be one of the 10 questions to ask before buying a franchise. You don't want to put all the time, effort, and money into starting a franchise you end up losing.

  13. How do I find the perfect franchise?

    The best place to start your search for the perfect franchise opportunity is All USA Franchises. All USA Franchises is a FREE franchise directory whose mission is to have all 3000+ franchises in the United States listed in one place, making it easy and convenient for you to find the franchise opportunity that works best for you. This ensures you, as an entrepreneur or potential investor, have the best chance of finding the perfect opportunity for you based on your lifestyle, your budget, and your passion. No other franchise directory provides the largest selection of franchises like All USA Franchises. There's no better way to find a franchise than by searching the All USA Franchises directory, either by industry or by investment.

Whether you're looking "green" franchise opportunities, coffee shop franchise opportunities, or concrete and paving franchise opportunities, All USA Franchises is the perfect place to search. Here you'll find franchise opportunities in hundreds of industries, including niche and specialized industries. You'll also find franchise opportunities to fit your budget, whatever it may be. Join us at All USA Franchises and start your search for the franchise business that will be the start of your journey to success.

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Are these the only 10 questions to ask before buying a franchise?

Not by a long shot. There are many questions you could ask. There are no stupid questions, especially when you're investing your money. Entering into a franchise agreement is legal and binding. Make sure you ask enough questions to make you feel comfortable with the investment in time and money you'll be making.

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