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Buying a Franchise Business – What to consider

Should You Start Your Business by Buying a Franchise?

Buying a franchise is often a much easier way of starting your business. Much easier than starting a new business from scratch, or even buying up someones existing business.

However, like everything in life it has advantages and disadvantages that need to be looked at carefully.

Before you make any decision about a franchise business, lets do some research and look at the advantages and disadvantages.

What are the Advantages of Buying a Franchise?

First, consider the advantages of buying a franchise. All of the following things should already be done for you.

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  • Use of a trademark or brand, no slow reputation to build up. Instant recognition.
  • Support from the franchisor, they obviously want you to succeed.
  • Already set up and proven systems that work.
  • Training by the franchisor.
  • Free market research, this is vital, and can be costly to do yourself.
  • Prepares you for competition based on their experience.
  • Buying and service economies of scale.
  • National and International advertising and marketing.
  • Lessons in the risk of business ownership.

Now the disadvantages of buying a franchise

The main things that you have to be aware of before buying a franchise …

  • You don’t own your own brand.
  • You are restricted to imposed rules that have to be followed to the letter or else.
  • You cannot be an independent thinker.
  • Expense, some franchises can be very expensive. Just check out the startup costs for the Top 10 franchises.

Deciding if a franchise business will be right for you.

Like everything else, let’s start with you. You need to be convinced that owning a franchise is right for you.

Buying a franchise can be a good step towards being your own boss; it trains you for a business life.

The step from employee to business owner can be made easier by first owning a franchise with all its support. Then down the line you can move on to starting your own business, having acquired a lot more business skill and confidence.

However, remember what we mentioned under disadvantages

Free thinkers who hate rules and regulations, don’t like interference and need to have complete control over all aspects of their business lives, are not good candidates for franchises.

Looking at your work experience, past jobs, skills and interests together with the amount of money you have or can raise to invest, all helps with the final decision.

So, taking the above into consideration, if you have now decided that franchises are right for you. let’s look at choosing the right franchise.

The Top 10 Franchises for 2010 included …
  • Subway – sandwiches & salads. Startup costs $84,300 – $258,300
  • Mcdonalds – hamburgers. Startup costs $1,057,200 – $1,885,000
  • 7-Eleven Inc. – Convenience store. Startup costs $40,500 – $775,300
  • Hampton Inn – Mid-priced hotels. Startup costs $3,716,000 – $13,148,800
  • Supercuts Hair salon – Startup costs $112,600 – $243,200
  • H & R Block – Tax preparation & filing. Startup costs $34,438 – $110,033
  • Dunkin’ Donuts – Coffee, doughnuts. Startup costs $537,750 – $1,765,300
  • Jani-King – Commercial cleaning. Startup costs $13,200 – $93,200
  • Servpro. – Insurance disaster restoration. Startup costs $127,300 – $174,700
  • ampm Mini Market – Convenience & Gas. Startup costs $1,835,823 – $7,615,065
Year to Date The Top 10 Franchises include …
  • Hampton Inn – Mid-priced hotels. Startup costs $3.7 to $13 million dollars
  • ampm Mini Market – Convenience & Gas. Startup costs $1.8 to $7 million dollars
  • Mcdonalds – hamburgers. Startup costs $1 to $2 million dollars
  • 7-Eleven Inc. – Convenience store. Startup costs between $30k and $604k dollars
  • Supercuts Hair salon – Startup costs $119k to $196k dollars
  • Days Inn Hotels – Startup costs $192k to $6.5 million dollars
  • Vanguard Cleaning Systems commercial cleaning – Startup costs $8k to $38k dollars
  • Servpro. – Insurance disaster restoration. Startup costs $127k to $174k dollars
  • Subway – sandwiches & salads. Startup costs $84k to $258k dollars
  • Denny’s Inc. fast-food and steakhouse – startup costs $1 to- $2.3 million dollars
The Top 10 Home Based Business Franchises are currently …
  • Vanguard Cleaning Systems commercial cleaning
  • Servpro – Insurance disaster
  • Jan-Pro commercial cleaning for military veterans. Startup costs $3k to $50k
  • Jazzercise fitness classes. Startup costs $3k to $75k
  • Matco Tools Startup costs $82k to $191k
  • Stratus Building Solutions office cleaning. Startup costs $3.5k to $57k
  • Snap-on Tools Startup costs $18k to $278k
  • CleanNet office and building cleaning. Startup costs $6.5k to $93k
  • Bonus Building Care commercial cleaning. Startup costs $9k to $42k
  • System4 commercial cleaning. Startup costs $5k to $38k

Researching and Choosing Your Franchise Business …

There are thousands of franchise companies in the USA, with thousands more in Europe and elsewhere in the world, so the choice is virtually unlimited.

Don’t be in a rush when thinking of buying a franchise and don’t limit yourself to looking at just the franchises in the food or service industries, that you think you might like to join.

Keep an open mind and look at all the industries that contain franchises.

You can investigate franchises on the Internet, use a franchise broker or visit franchise trade shows, and look at them all. You might just be able to get in on the ground floor with some new, ready to take off, idea.

Once you have completed your research, you will now have a list of possible franchises that look interesting to you and need further investigation. Now is the time to contact the franchisors and ask for information on their businesses.

Check out the information supplied from the franchisor by …
  • Viewing their web site.
  • Read anything that they have sent you.
  • Watch any videos that you have been sent.
  • If they call you, let them know what you are wanting and where.
  • Are they friendly, professional, and willing to answer all you questions?
  • Reading their UFOC.

Follow this up by checking online for any newspaper or magazine articles about them.

Check whether the opinion of the company is good? The information is there, so before buying a franchise you just have to find it and check it out.

In the United States, the Federal Trade Commission (FTC) has available free information on the FTC Franchise and Business Opportunity Rule. This is a must read in your investigation of franchise opportunities.

Now to one of the most important documents, that being “The Company Uniform Franchise Offering Circular (UFOC)“.

By law, in the United States, this circular must be made available to all intended purchasers of a franchise.

This circular contains information on the company, franchise costs, royalties and fees.

It will inform you of any litigation pending against the company.

On top of this, details of the brand, trademark, products, joint party obligations, locations and addresses of franchise holders, details of opened and closed franchises, capital required is shown. Are openings of new franchises greater than closings? Or does the rate of closings look too high?

This really is a gold mine of information, something you must read and absorb before buying a franchise.

Beware however of any claims by the company of profits to be made.
Check these out independently. Have your accountant and lawyer read this as well. After all this research, you should have a pretty good idea of who you like and which franchises hold no interest for you.

Now the really important check. Speak to existing franchise holders.

Pick your own list of franchisees to interview from the list of existing franchise holders supplied in the UFOC.

Most franchise holders will be only too pleased to help; they have all been through it themselves.

Try and pick franchisers to interview that are not too close to where you want to start your own franchise, nobody likes competition next door!

Visit them and ask all the questions you have not yet had answered.

Sound them out; are they happy with the franchisor? Do they have any conflicts? What are the practicalities of the business? Would you be happy doing the same? What are the profits like and do they compensate for the work required?

Check out all the possible franchises in the industries that you are interested in, this will go towards helping you make your final choice.

Before you make your final decision as to whether buying a franchise is for you, let the franchisor know that you are now close to a final decision and wish to attend one of their open or discovery days.

Here you will meet the home office people and get to understand how the franchise works from both your and their points of view.

You can judge the people and business and they will also be doing the same about you.

Any good franchisor will only want potentially good people holding their franchise, so try and impress.

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Most modern franchises are worthwhile, so don’t discount them.

Up to now you have made your choice based on logically following the steps needed to assess all the facts, you have listened and learnt but there is one more thing to do before buying a franchise…, try your hand at that franchise business.

Doing so will be the final decider, so arrange with the franchisor to spend time, at least 6 to 10 days, with an existing franchise holder.

This will allow you to see and feel what your life will be like in the business. If you can’t decide between two different franchises, work in both and then decide.

You will probably have to work for free but you will learn how the franchise operates in practice and this will help you make an informed final decision.

A Guide to Your Franchise Business Success. After all your hard work and research getting here, you will know that you have made the right decision. Buying a franchise will have a huge effect on your future life. So make sure you get it