5 Things that you must Consider when Buying a Franchise

top 5 things to consider and watch out for before deciding to buy a franchise

If you dream of owning your own business, one great way to go about it would be to purchase a franchise. When you buy a franchise of an already existing business, you will be able to take advantage of a variety of benefits including an already established reputation, a good customer base, and corporate support. While there are benefits to owning a franchise of an existing business, there are expenses and other limitations that you need to be aware of. There are 5 things in particular that you must watch out for when you are buying a franchise.

Costs of Owning and Operating

different costs associated with running a franchise business

One of the first things that you need to understand when you are buying a franchise is what the cost will be for starting, opening, and operating the franchise. Most national franchisors have a variety of costs that you will have to pay. These costs can include an initial franchise fee, ongoing annual franchise maintenance fees, inventory surplus fees, and marketing fees. All of these expenses can add up and need to be carefully considered when preparing your budget.

Operating Requirements and Limitations

When you buy a franchise you will be required under the franchise agreement to follow a variety of different rules. These regulations can dictate how you run your business. This can include telling you when you need to be open and operating, what products and services you can provide, what hiring processes need to be followed, and a wide variety of other factors. All of these rules should be properly understood before you start operating. Otherwise, you could face penalties from the franchisor.


importance of receiving an additional support when you are running a franchise business

While there are expenses and drawbacks that come with owning a franchise, there are benefits as well. Beyond the reputation that comes with the business, you should understand what additional support you will receive. Some of the support you can receive will include financing for inventory and startup costs, marketing and training assistance, and help with real estate site selection.

Franchise Historical Success Rate

You should also get a firm understanding of what the typical success rate is for a franchise. You should ask for detail as to what the typical income stream is for a franchise, how many are still open and operating ten or more years later, and anything else you find relevant.

Success of Actual Franchise

While many people choose to purchase franchise that is brand new, another option would be to consider buying an existing franchise that has already been established. When you are buying an existing franchise, there are an additional set of risks that you need to be aware of. Prior to purchasing any business, you need to make sure that you do a lot of diligence to make sure it is healthy. You will want to spend time reviewing financial statements, meeting with staff, and doing diligence on the market to get a better understanding of the franchise’s reputation. This will help you better assess whether the franchise you are looking to buy will be successful going forward.