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5 Mistakes to Avoid When Buying a Franchise

January 15, 2019
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How great would it be to have your own business and be your own boss? There's no doubt buying a franchise is a great way for many Americans to achieve this dream. Buying a franchise can be an easier route to owning a business because there is already an established product, a brand, a reputation, and a customer base. For these reasons, a lot of people decide to get into business by purchasing a franchise. While franchise ownership can be a quicker, easier route to having your own business, there are still a few things to consider before jumping on board.

There are 5 Key Things to Avoid When Buying a Franchise

5 mistakes to avoid when buying a franchise

Neglecting to Do Your Homework This is an obvious mistake no matter how you go into business. The homework, or research, should begin as soon as you decide you want to go into business for yourself. Research and compare franchises in various industries to determine which of those industries interest you and whether or not the franchise you want to buy is one that will hold up even under changing economic climates. Don't be afraid to call other franchisees to ask questions. The goal is to buy into a franchise that offers you the greatest chance for success, so there's no such thing as doing too much research before you start your franchise business. The more you know about a franchise before you buy one, the better off you'll be in the long run.

Not Doing Research to Compare Franchises in Various Industries
Underestimating Cash Needs Don't underestimate the amount of cash you will need to start a franchise. You need to get a loan for the cost of the franchise itself, but you are going to need additional money to operate on a day to day basis until the franchise begins to produce its own operating cash. This is called working capital. Of course, a well-known and established brand can mean your business will be up and running faster than an unknown start-up, but making this assumption can be a crucial mistake that could cause you to struggle or even fail. Always ask the franchisor for an estimate of the day to day operating costs and try to include a year or more of that expense in your loan. Other costs you should be aware of include build-out costs if there will be a new location built and you are responsible for the cost, legal fees, accounting fees, payroll, and supplies. Some of these will come out of working capital, which is why it's so important to factor that in.

Underestimating the Amound of Cash Needed
Following Trends It can be easy to see "money" in a hot new trend. It can also be tempting to jump on the bandwagon, but not every trend turns into a long-term business venture you can count on to provide a sturdy financial future. Be careful before you invest in the latest and "hottest" new trend. Refer back to mistake number one. Always do your homework. Take a look at the trend and determine whether or not you believe it's a sound venture for the long term. Is it something people need or do they want it? Will it hold up even when economic times are tough? Is there room for growth or is this trend a niche product?

Following a Trend that Doesn't Turn Into a Long-Term Business
Not Having an Exit Strategy This needs to be addressed. Nobody wants to fail in business, but it is always a possibility. Any entrepreneur knows this. It's important to have an exit strategy in case the franchise doesn't do as well as you expected or in case you find that you are not cut out for the franchise business. An exit strategy includes knowing how you can legally get out of any agreements, how you will handle any debt you may have, and how you will recover from the loss of the business. Hopefully an exit strategy will not be needed, but having one in place can keep you from being overwhelmed or even facing legal issues should the business fail.

Not Having an Exit Strategy Planned
Not reading Before You Sign Believe it or not, many people will listen to what a franchisor has to say about the contents of the franchise agreement or the franchise disclosure document. These documents should be read thoroughly before you sign them. In fact, getting an attorney to go over the finer points of the franchise agreement is a good idea. The cost of the attorney could save you a great deal of headache down the line. The franchise agreement covers everything you need to know about your rights and responsibilities as a franchise owner, and just as important, what you can expect from the franchisee.

Not Carefully Reading the Franchise Agreement

When You're Ready to Find a Franchise

There's no better place to start your franchise search than All USA Franchises. Why? Because we are on a mission to bring you all 3000 plus franchises in the U.S., making us the largest FREE franchise directory available. All USA Franchise makes it easy for entrepreneurs, investors, franchisors, and franchisees to find and advertise franchise opportunities of all kinds. If you're searching for a franchise, you can search for specific industries or you can search by investment. If you prefer so, you can also do a keyword search. This makes it easy for you to find the perfect franchise opportunity for you and to narrow your choices down to those franchises that fit your specific needs.

All USA Franchises provides you with an informative franchise blog full of helpful articles and tips for franchisees as well as the latest franchise news. We also provide the latest information about the franchise events you won't want to miss. In addition to the blog and events information, we bring you a valuable resource section that helps you locate franchise advisors, franchise brokers, franchise consultants, franchise developers, franchise lawyers, and those specialized in franchise training. These resources will save you time and can provide you with additional franchise help when you need it.

Don't forget to visit our social media profiles, where we are always keeping you up to date with the newest franchise opportunities. There's no better way to stay on top of what's new in the industry and the best franchise opportunities available.
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