Buying your first franchise: What you need to know

Listen in! Pick up some expert advice to a reader's question that we selected from CyberSchmooz.

Buying a franchise is an appealing prospect for many entrepreneurs. Becoming a franchise owner means having your own business to run, but without having to do all the legwork usually required to establish a business and build a brand. With a franchise, you can skip straight to running your own outlet and being your own boss.

But just because buying a franchise is easier than starting a business from scratch, that doesn't mean it's something you should rush into without thinking. A mismanaged franchise can still cause enormous financial harm to its owner; you need to be certain that you are up to the challenge before you commit to it. Before you pull the trigger on your first franchise purchase, make sure you have considered and taken on board all of the following.

Ask the important questions

To properly assess whether any franchising opportunity is worth your time or not, you need to answer some important questions. Just because the franchisor is a good salesperson and makes a convincing case for buying a franchise from them, that doesn't necessarily mean it's a good deal.

The first thing you need to know is the precise terms of the franchise agreement. The franchise agreement codifies the relationship between you and the franchisor and sets out the terms under which you will operate. Pay particular attention to the length of the franchise term and whether it automatically renews. If the agreement specifies a minimum term, you need to be prepared to stick with it for at least that long or face some stiff penalties.

You also need to be clear about the licensing and intellectual property arrangements. Usually, the franchisor will retain ownership of their logo and other trademarks. However, they may allow you to use them for marketing and other business-related purposes. Alternatively, they might retain strict control over them and dictate exactly when and how they are used.

Finally, find out whether you are expected to find your own location or not. For home based franchises, this isn't so much of an issue. But for retail franchises, some franchisors are looking for franchisees to set up in a location they have already chosen. Other franchisors expect their franchisees to find their own suitable location.

Seek out opportunities, don't wait for them to come to you

There are plenty of franchisors eager to sell franchising opportunities to anyone willing to buy them. Of course, every franchisor will tell you that buying a franchise from them is a solid business move and promise you a decent return on your investment. But if you are only considering the franchising opportunities that happen to come your way, you will be missing out on the real golden opportunities.

Instead of passively waiting for the right franchisor to come to you, you should actively seek out franchisors in industries that are relevant to you. Whether that means industries that you already have experience with or those you have a passion for, you are much more likely to find a fulfilling franchise opportunity if you are selective about what you consider. There are franchise opportunities in just about every industry; there are pet franchises, van-based franchises, plumbing franchises, and cleaning franchises, to name just a few.

The franchise market is extensive. Look through franchise directories like franchiseek.com to find opportunities that are relevant to your professional goals and experience.

Be brutally honest with yourself

Having the ambition required to even consider buying a franchise is a great thing for any entrepreneur, but passion and ambition alone aren't going to make your franchise successful. If you are serious about buying a franchise, you need to conduct a thorough audit of your finances and personal situation.

Buying and operating a franchise is a significant financial commitment. If all goes well, you should see a return on your investment relatively soon, although how long you have to wait will depend on the terms of your franchise agreement. But as any entrepreneur knows; nothing is certain in the world of business. Ensure you have the financial resources to survive until your franchise is generating a reasonable income for you.

Having some doubts is healthy when you're running a business. But underneath those doubts, you need to truly believe that you are capable of leading your business to success. Be completely honest with yourself about whether you think you have what it takes to successfully run a franchise before committing yourself to it.

Buying a franchise has the potential to be the best decision you ever make. Franchises are an excellent route for any entrepreneur to take if they want to enjoy the perks of being their own boss and running their own business without having to suffer through the precarious first few years of a new business's life. However, it is essential that you understand what you are signing up for and your ability to make a success of it. Make sure you ask the right questions of both your franchisor and yourself before you commit.

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