10 Key Points to Consider When Buying a Franchise

If your goal is to buy a franchise, choosing the right franchise brand to invest in is one of the most important decisions you will make as a business owner. It’s not just about finding a company with a proven track record, but it’s also about finding a company that suits your personality and lifestyle. Your first step is knowing what to look for when evaluating a potential franchisee. Here are some key areas to consider:

franchise fee

Franchisee fee is a one-time payment made at the time of purchasing a franchise. These fees can range from $10,000 to $100,000 and are used to pay for the rights to use the names, processes, and any systems developed by the franchisor. It is also used by the franchisor to cover costs for training and opening support by the franchisor to assist the franchisee with the opening of the franchise. Franchisors usually charge their franchisees an up-front fee when the franchise is granted. In addition, COVID’s initial “turnkey” investment may be higher than previously thought due to supply chain issues, inflation, and increased equipment costs and leasing improvements between brands.

royalty fees

A royalty fee is the amount of ongoing money (usually a percentage of gross sales) that you pay to the franchisor for ongoing support such as using their brand name and marketing and developing new products or services for the franchisee. As a franchisee, you have to pay royalties based on a portion of your sales. This percentage can be fixed or fluctuate on a sliding scale depending on sales.

span length

The length of the franchise term can be a good indicator of how much a franchisor invests in their franchise.

On average, depending on the type of franchise, home based versus retail location, the terms of franchise brands last ten years or less. This means that the franchisee and franchisor have plenty of time to work together and develop a solid relationship. Nevertheless, it also means that the franchisee will keep the business if something doesn’t work out. If a franchisee is performing poorly, the franchisor may not renew the franchise contract after it expires, or may attempt to terminate the franchise before the full term. In such a situation, the franchisee will have to go out of business. In many instances, there will be a contractual obligation that the franchisee cannot open a similar business for a period of time within a certain distance from his place of origin. This is called a non-compete clause.

Consider your lifestyle.

  • Consider your lifestyle when running a business.
  • View hours of operation. You don’t want to buy 80 work weeks.
  • Review the franchisor’s flexibility with respect to new products, relocation and other variables.
  • See if the location matters to you. You will need to manage the location or develop a team to manage the day-to-day operations for you.
  • Check out the type of work required to run a franchise. Make sure it fits your skill set and interests, including whether this is something you would love to do as a full-time job.
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Seeking the advice of a professional franchise advisor can be an extremely useful method when evaluating whether a franchise is the right business model for you. Scott Milas, a Certified Franchise Executive (CFC) and Certified Franchise Consultant (CFC) with the International Franchise Professional Group recommends that you consider these questions: “Your “Knowing” and “Why?” Understanding the “Why” You’re interested in owning your own business, and “knowing” who you are are important steps in choosing the right opportunity. A self-assessment and a clear picture of your skill set and the end game—exit strategy, help Make sure you invest in the right opportunity. It’s better to “know” now than to make the wrong decision. “Why” now?

An experienced franchise consultant can help you answer those questions and help you choose a brand that offers opportunities to meet your business goals along with a good lifestyle.

Find an Experienced Franchisor

To select the ideal franchise company to join, you must first find a company with a proven track record of success. A good franchisor must have been in business for at least two or three years and be able to demonstrate the growth potential of their products and services. The best way to do this is to see how many franchises they currently have and whether they are profitable. A strong and growing network often indicates a successful brand. In addition, it shows that customers value their products or services enough to make them pay for them again through multiple businesses.

The second thing you should consider while choosing a franchise is reputation – how well does your chosen brand stack up against its competitors? While there may be other similar businesses with similar business models, there are points of difference in the band you selected to differentiate yourself from the competition. It is essential that you choose one that uses high quality ingredients, delivers consistent results, and provides excellent customer service while maintaining competitive prices at all times.”

Know your competition

Knowing your competition is one of the steps in building a successful franchise business. What brands are already on the market, and how do they compare? What is their customer base, and what can you learn from them? How is your offering different from theirs, and how do these differences help or hinder you as a company?

Tom Skarda is a former franchisee and now a franchise coach and consultant who advises franchise buyers on how to evaluate the competition and what it can mean for their success as a franchisee to “need products or services in their area”. It’s smart to think about the service and consider bringing that kind of business to town. However, just because your city doesn’t have batting cages and you think it would be great because there are kids everywhere, you’re right. However, will it make money? Is there a reason there are no batting cages in the area? When starting a business, you must have a comprehensive business plan before anything else. Learn about the competition in the field. You Understand the local county laws and regulations surrounding the business you are considering. Be realistic about the cost of starting and running the operation. These are some of the things to consider in the business plan.”

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Once you know who’s out there, it’ll be easier for you to see where there are gaps in the market—and then fill those gaps with your unique brand identity.

Review the franchise disclosure document carefully.

Read the Legal Franchise Disclosure Document and have it reviewed by a competent franchise attorney. Harold Kestenbaum, a renowned franchise attorney at Spadia Law, advises: “When considering the purchase of a franchise, I highly recommend enlisting the services of an experienced franchise attorney. Do not consider buying a franchise without consulting an attorney who has previously reviewed the FDD. I also recommend that you do your due diligence. By this I mean you should review item 20 of the FDD and call all existing franchisees that are in your general area.

There are additional factors to consider when reviewing a franchisor’s FDD. According to Richard Baer, ​​a partner at the law firm Einbinder & Dunn LLP: “For many first-time business owners, buying a franchise will often be one of the top three costliest transactions to ever make a franchisee in their lifetime. Given the seriousness of the investment, a franchisee must Must be committed to doing due diligence. It starts with talking to existing franchisees as well as system leavers. Their contact information can be found in the FDD. The goals of these calls are to gain a better understanding of the economics of the franchise Includes – is it profitable, when the break even is reached, costs (labor or otherwise) do or does revenue fluctuate significantly making it difficult to predict performance. Also gaining an understanding of the franchisor’s nature Equally important – the franchisor is supportive, the franchisor goes above and beyond the legal obligations (imposed in the franchise agreement) to deliver for their franchisees, the franchisor is forward thinking and/or technology driven. FDD About a System a plethora of information in It is a source, but there are gaps that could very well be filled by franchisees and dropouts in the system. Buying a franchise without talking to as many franchisees as possible is a lost opportunity. ,

Check the Franchisor’s Track Record of Tenure and Success

Apart from analyzing the financial position of the franchisor, it is also important to examine their overall track record. While a strong balance sheet is an essential indicator of the health and stability of a business, it doesn’t tell you much about how they have performed over time. So, for example, if you’re looking at two franchises with similar books and financial status, but one of them has been around for four years while the other has been in operation since 1899, it would make sense to choose the latter. Case – even if everything else looks the same on paper.

This information may be obtained from third party sources such as Dun & Bradstreet or franchise trade magazines or by visiting the International Franchise Association website. Always go directly through your franchisor to get this data yourself so they can confirm that everything is correct and up to date. Also, it is important that you talk to or meet with as many existing franchisees as you can before making your final decision.

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What are the brand’s training programs and endorsements?

When you buy a franchise, you are not just buying the rights to use its brand name. You also get access to training programs, advice and support from the franchisor. These must be proven and effective; Otherwise, it can be challenging for your business to grow or remain profitable.

You want to make sure that your franchisor is committed to your success as a franchisee. This means in-person training (the better option) and or using phone or video calls if necessary. It also means regular advice on how to run your business and what strategies can help you reach more customers or increase revenue.

Review the franchisor’s marketing plans.

A good franchisor will have a written marketing plan. The marketing plan should include a social media strategy and details about how the franchisor plans to use the funds provided through your advertising fee. If you ask for this document, they should be ready to share it with you.

Choosing the right franchise brand can significantly impact your success.

We have talked about screening potential franchise brands above. Still, there are some other factors that you should also consider when choosing to invest your time and resources.

Tom Scarada adds, “We always hear the phrase, “If you love what you do you never work a day in your life.” That’s true if you’re doing a job. But franchises Not a job. It’s a business that allows you to create a lifestyle. In the end, the service or product provided by the business doesn’t matter. Of course, it should make sense to the community where you work And the concept should be something that you understand. However, you can be a vegetarian and own a burger joint. As the owner you are acting as the CEO and as the CFO, you are not Flippin’ Burger. .. well you shouldn’t. It is related to your hobby. If you do, you’ll no longer have a hobby, and you’ll probably resent the hobby if you try to pay off your mortgage with it. Instead, invest in a business that will give you the time and money to enjoy your hobby until it’s to your heart’s content.


It is important to consider all of these factors when looking for a franchise brand. Some of them, such as fees and length of term, are more straightforward than others. But, if you want to be successful in your franchise opportunity, it’s worth taking the time to research what makes each franchisor completely unique. A good franchisor will have invested in training programs and support systems that will help you understand how their business works.