Many of our business brokerage specialists are asked about franchises. Should you purchase one and what are the upsides to this type of acquisition? It’s become a popular option among business buyers, but should you take the leap?
Franchises are significantly different than independent businesses and offer several distinct advantages.
The first advantage involves a structured system of doing business. Whether or not an individual has specific experience in the particular industry, he or she can utilize the business system and succeed. Franchisors provide detailed training that fully explains the business system and how to use it.
Next, a franchise comes with a recognized name. Starting a business under your name is far more difficult than using a name that is known regionally or nationwide. A well known franchise name appeals to many consumers and provides more customer support than an independent business.
Most franchises also necessitate execution of a Franchise Agreement, which requires the franchisee to comply with franchisor policy and procedures. This is actually a good thing, since it creates a consistent product among all of the franchises.
Finally, franchisors provide operations support. An operations manager will visit, evaluate and make recommendations for improvement.
For these reasons, the resale value of a franchise can be greater than an independent business.
Before purchasing a franchise, you should ask the following questions:
- How long has the franchisor been in business?
- How many total franchises are in the network?
- How much is the franchise license fee?
- How much is the franchise security deposit?
- Are resale opportunities available?
- How much are the royalty fees?
- How much are the advertising fees?
- How long is the training?
- Does the franchisee pay for training and if so, how much?
- Can you call franchisees in the network at random and ask them questions?
- Does the franchisor sub-lease the franchise location to the franchisee?
- How long does it take to be profitable as a start-up?
- What are the terms of the Franchise Agreement?
- Where is the number one franchise located and can I contact him/her?
- What financing is available?
Do you have any other important questions to ask before purchasing a franchise? Sound off below.
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