Things to consider before franchising
Many business people will spend large amounts of money in the acquisition of a franchise business. The rewards of such businesses are undoubtedly plentiful and often require hard work. Due to the large amount of money involved, you need to research the benefits and drawbacks of a given business.
Before you decide to invest in a franchise, you should do a lot of research on the franchise, including its operations, training, number of current franchisees, number of failed franchises, and the franchisee’s overall track record of financial success.
Amount to invest
It is important to match the amount of financing to the cost of the franchise you are considering purchasing. You need to make sure that the amount of capital you have will cover your expenses for the first three to six months of operation. This is the period generally given as the time until your income is enough to cover your expenses.
Do not be put off
A considerable investment is involved in the purchase of any franchise. There are franchisors who present financial statements that are exaggerated, hence the need to take each promise with a grain of salt and be sure to examine all such exaggerated statements. One way to avoid such offhand statements is to request a copy of a certified audit conducted by an independent audit firm. While this does not guarantee that the statements are accurate, it does provide a certain level of certainty.
The quality and brand of the products
Many franchises require you to use their products, which often include some proprietary elements that are not known in the general business industry. Make sure products are readily available and there is adequate inventory for their use. You should consult industry reports from organizations such as IBISWorld to learn about trends in the industry in which you are investing. These reports help show how well a particular industry is doing.
The rules of the franchise
Franchisors have different rules that govern the business you buy from them. Review the franchisor’s contract proposal and see if it corresponds to your way of operating. Discuss with the franchisor any items you are not comfortable with and see if there is room for change. The company rules that you agree to should be those that you will not be wary of in the future.
Relationship with Current Franchisees
This is an important issue to consider when purchasing a franchise because the poor relationship between franchisors and franchisees is a major factor in the failure of most franchise businesses. Try to research the franchises that have failed in a given year and establish the causes.