We see articles from Entrepreneur, Forbes, and authorities in the franchising industry all the time highlighting the basics of buying a franchise. We thought it was high time we provide our two cents on franchising basics. So here goes:
The Basics of Buying a Franchise
If you’re thinking about buying a franchise, you’ve landed in the right spot! We have all the information you need to help you decide whether buying a franchise is right for you. We’ve got tons of franchising articles like this one, Franchising FAQs, and we even have a YouTube channel devoted to helping you find the perfect franchise to buy!
When is it right to consider buying a franchise?
If buying an existing, successful business doesn't sound right, or the perfect business isn’t available to buy, a franchise may be good for you.
If starting a business from scratch sounds overwhelming, and too much for you to handle, buying a franchise may be a better option for you.
So what is a franchise--and how do you know if you're franchisee material?
Basically, a franchise is a business that has perfected their processes to the point they are scalable and repeatable in most any market. As a franchisee you would pay a franchise fee to “buy” a franchise territory, they would tell you how to do everything, and help you all along the way, and you would pay royalties to them from your sales.
This is great to help you get your business off the ground as fast as possible. You’re basically buying a well-known brand and everything that goes along with it, technology, processes, best practices, and more!
As a franchisee you get a head start. You get to avoid many mistakes, and you benefit from the franchisors already smooth-running operations.
You’ll also have inside information about your territory, because the best franchisors research this for you – because they succeed when you succeed.
The final benefit we’ll mention, you get the buying power of the entire franchise system. You’re not one store front in a small town. You’re nationwide because of the franchise brand.
So what’s the difference between buying a franchise or buying a business?
Buying a business is typically far less structured than buying a franchise. There’s not as much training. The business seller is not as motivated for you to be successful as a franchise brand is. Once they sell you the business, they’re typically out, so what you do after the sale isn’t much concern to them.
Here are other key differences:
When you buy a business, it may not feature a well-known brand name or even allow you to use the name that was so successful in the past.
Buying a business tends to be a little less costly than buying a franchise, and doesn’t usually have royalty fees; but it doesn’t include all the help along the way that buying a franchise offers.
Buying a business probably won’t have limitations on where you can operate like a franchise system. Franchises typically sell single territories one at a time.
The Pros of Buying a Franchise
The single greatest strength of buying a franchise is probably the power of numbers in a brand. Bringing all the franchisees together under a single brand helps with brand awareness, uniformity, customer trust, and it benefits marketing and even procurement.
Business failure is less likely because the franchise system is proven, offering a model that has succeeded in multiple markets. Additionally, the franchisor is there to hold your hand; and you have other franchisees to network with.
Established Brand
Reduced Risk Factors
Proven Operations Ready to Roll
Uniformity of Products or Services
Proven Systems
Accounting in Place
Training
Marketing
Ongoing Research and Development
Operation Guidance
The Cons of Buying a Franchise
Franchising is an amazing way to get into entrepreneurship, but that doesn’t mean it’s right for everyone. Incredibly independent entrepreneurs probably aren’t suited for the strict rules enforced by a franchise system. Additionally, if you have creative ideas for how to do everything, you may not be suited for a franchise system.
Not all franchises are created equal. Some are great and offer all the help you need to almost guarantee success. Some simply sell you a name and say have fun! Buying the wrong franchise is definitely the largest con we can think of.
Less Control
Less Self Expression
Expansion Requires Additional Territories
You’re Legally Bound to the Business
If the Franchisor Has Problems – They Can Become Your Problems.
Costs of Buying a Franchise VS. Buying a Business
These will vary greatly depending on the franchise or business. One big advantage of buying a franchise, however, is that you can see all the “initial investment estimated costs” in a franchise system’s franchise disclosure document, which is required by law. You can learn more about the law at the FTC’s Franchise and Business website.
If you’re buying a business, no such “blanket” requirement exists. There could be hidden costs you’re not aware of that pop up along the way.
Some costs to prepare for:
Store Front / Building / Warehouses / etc. that may be required
Equipment you’ll need
Signage
Inventory – even service businesses may require some level of inventory
Operational / Working Capital
Marketing and advertising costs
If you’re thinking of buying a franchise, don’t get ahead of yourself or be swayed by the thought that it will be easy. While franchising is setup to help you succeed – success is never guaranteed, and any business takes hard work.
Never rush into purchasing any business. Don’t be swayed by promotions, or act fast reasoning. Perform your due diligence.
If you decide buying a franchise may be right for you – get the help you need. Franchise Consultants, Franchise Attorneys, and other professionals are available to help!
If you didn’t know already, the services, experience, and expertise of Franchise Consultants, like yours truly, are FREE. Get all the expert advice you need, explore hundreds or thousands of franchise opportunities and rest assured knowing all your questions will be answered.
