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Buying a Franchise

Written by: Matt Wilhelmi

Buying a franchise is a great way to take a proven concept and start a small business. Unfortunately, there are a lot of questionable people “selling” franchises. Just a few weeks ago, I talked to a franchise owner who wished she had never made the decision to buy. Not only was she not making the money she was promised, but she found that running the franchise was emotionally draining and personally unfulfilling.

There are a number of factors that should be considered before buying a franchise. It’s not just about the franchise itself. You should consider the location, financials, industry, legalities, revenue diversity, franchisor responsibilities, and expected outcomes, just to start.

Here are some easy ways to determine if buying a franchise is right for you:

Visit the concept store

If you don’t have the time or money to visit the concept store, you’re probably not ready to consider buying a franchise. Visiting the concept store will tell you a lot about how the franchise should be run, who the target market should be, and what to expect from running a franchise. It’s one of the first steps to buying a franchise.

Review the historical financials

If you are only given projected financials, ask for other locations’ actual financials. The more actual (not projected) financial data you can review, the better. Projections are nice, but you should understand what actually happened either to the location you are looking to take over or to another location that already went through a twelve month cycle.

Research the local market

If you are thinking about buying a franchise, it’s important to research the local market. Talk to business owners in the same area, go grocery shopping at the local stores, visit chamber of commerce mixers, ask random people who are in line what they think of the area, etc. Research should be more than reading and accepting whatever the franchisor gives you for market research.

Understand the revenue mix

This is important to any business. But, if you’re buying a franchise, it’s especially important to understand where all of your revenue will come from. You should also determine what leeway you have to add to the revenue mix.

Interview the other franchisees

Before buying a franchise, part of the due diligence should be building a relationship with other franchisees. This starts with either visiting or picking up the phone and talking to them. Ask them questions about their experience working with the franchisor, about their experience with the accuracy of the financial projections, and about any obstacles they came across since they started. These are all things to consider before buying the franchise.

Have you ever considered buying a franchise?

If you have gone through the process of buying a franchise, what did you learn? What do you wish you would have known before buying a franchise?

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