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BFS Capital Blog

5 Things to Consider Before Buying a Franchise Business

May 22, 2017

There is no one way to run and own your own business. Some try a do-it-yourself method, starting from scratch and getting creative. However, doing this takes a specific skill set and personality type. On the other hand, some others prefer a more structured method to getting a business up and running.

Franchises offer a turnkey method of starting a business that appeals to many entrepreneurs. But if you’re thinking about buying a franchise business, here are five things you should ask yourself before you jump in.

How Much Money Do I Need?
Like owning your own business, buying a franchise can cost a pretty penny. Franchise purchases require a heavy investment as well as ongoing funding to keep it running. If you’re looking to buy a franchise, one of the first things you need to do is calculate your assets and capital. You should know how much you can put into your new business from the start and how much you can afford to continue the investment.

Upfront investments depend on how big the franchise chain is. For example, a smaller chain like Jersey Mike’s Subs could range somewhere in the hundred-thousands, while a larger chain, like Taco Bell, could cost over $1 million. It’s important to remember that other fees – royalties, advertising costs, and property and equipment leases – will be ongoing.

How Much Control Do I Want?
If you want to be your own boss, running your own business or buying out a franchise is a good way to achieve that. However, while few, there are some limitations to your freedom as a franchise owner. Franchises are generally legally obligated to uphold the corporate brand’s rules and procedures.

Some contracts may outline that all human resource issues and processes will be taken care of, according to the corporate regulations, or that accounting and workflow practices have to follow a specific set of guidelines. Of course, not all franchises are the same. If you want more freedom with the way your franchise is run, take a look around at the terms for other franchise contracts.

Can I Really Handle the Work Load?
Many business owners have a misunderstanding about the way franchise companies work. When purchasing a franchise, they sometimes think that they’re getting a moneymaker packaged up in a box. They underestimate how much work they’ll actually have to put into the business.

As a franchise owner, you get the skin and bones handed to you. However, you don’t get any of the pieces that actually make it run. You have to work hard and put in a lot of time and energy into managing and operating your investment, making it worth your while.

Do I Prefer Low-Risk Situations?
A good franchisor will provide you with ongoing training and support. You won’t be expected to know how everything works right off the bat. It’s a little less risky than starting your own business, only because you’ll have a network of support already available to you and an established brand.

What Can I Do Differently?
While franchise chains often run according to similar structures and guidelines, as an owner, you will be able to add a bit of your own managerial style and business acumen. To be successful, you have to provide something that no one else can. Don’t be afraid to do something different, especially if you think what’s being done won’t work for your business. If one franchise is having problems, you want to make sure not to repeat their same mistakes. Ask for advice and seek out different perspectives.

As with every other business decision, there are pros and cons to purchasing a franchise. It’s important to do your homework and talk to other franchise owners to make sure you are making the most informed decision possible. If you’re considering buying a franchise business, be sure to keep these five questions in mind.