Should I Buy a Franchise?

How much capital do you have access to?

The average cost to start a franchise is between $100,000 - $300,000. Some franchise investments are lower, while others are much higher. These costs include fees paid to purchase the franchise, site development, equipment and supplies, training, insurance, marketing materials, personnel, and more.

A franchisor will look at your liquid capital (the amount of money you have on hand) and also your net worth (the value of your liquid capital plus all your assets, minus the amount of any liabilities). The amount of liquid capital(liquidity) and net worth required by a franchisor varies, and is proportionate to the initial investment needed to start up a franchise.

If you don’t have a lot of money on hand or a large net worth, don’t give up on your franchising dream. Just look for a lower cost franchise, such as a service-based business that can be run from your home, instead of a higher cost franchise such as a retail store or restaurant.

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Do you have the financial ability to support yourself and your family for several months?

Like any business, a franchise takes time to start producing a profit. Along with the costs associated with opening your new franchise, if you are the sole breadwinner in your household you’ll also need some money set aside to support yourself and your family while the business is getting off the ground. The franchisor can help you determine roughly how much you will need and for how long.

Keep in mind that many franchises fail within two years because their owner slack adequate capital or experience running a business (and therefore don't know how much money they'll need). A good franchisor will help you develop a detailed budget for your business and realistic expectations for how long it may be before you can depend on the business for personal income.

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What are your plans for the next 5-10 years?

When you purchase a franchise, you will be required to sign a franchise agreement that specifies the initial length of time you will operate the franchise business. The typical contract term is 5-10 years, with an option to renew at the end of that term if everything is going well.

When you start a new position in a company, you may not plan on spending the next several years there. With a franchise purchase, you are committing to at least spending the initial contract term operating the franchise. Depending on the terms of the agreement, you may be permitted to sell your franchise to someone else before your term is completed, but there are usually fees associated with a franchise sale and you may have a hard time finding a buyer, especially if the business is not doing well. If you decide to walk away from the business before the franchise term is up, you will lose your initial investment and may also be subject to additional fees or penalties from the franchisor.

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Are you willing to invest in the success of the franchise?

Along with adequate capital to start the franchise and support yourself while it is ramping up, you need to be fully invested in the success of your business. Starting a business is a time-consuming endeavor and you will need to set aside significant time while you are learning about the franchise and when the business is new.
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Investing in the success of your franchise also means being committed to the franchisor’s training and operational guidance. Franchisees who follow the franchisor’s playbook typically see greater success than those who decide to “wing it” or do things their own way. Remember, the franchisor has spent years designing and optimizing their business. While many franchisees come up with ways to improve upon the franchisor’s design, as a new franchisee it’s best to follow the franchisor’s lead as closely as possible to reduce the risk of failure.

Also remember that once you sign a franchise agreement, the franchise fee is not refundable if you decide not to go through with it, or if you don't pass your training program. Investing in a franchise, and running a successful franchise, are both serious commitments.

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Are you a self-starter?

As a franchisee, it’s important to follow the franchisor’s playbook to maintainconsistency with other franchises in the system and to maximize your chances for success. However, this does not mean that if your franchise fails,it’s the franchisor’s fault. A franchise owner must take charge of their own success.

To succeed as a franchise owner, you need to have the ability and desire to learn new skills and adapt quickly as situations arise. You also need to be able to analyze and solve problems, both day-to-day issues and strategic challenges. You will need to wear many hats and be comfortable training others when the time comes to delegate. Very importantly, customer servicemust be a priority for you. Finally, you will need to maintain a positive attitude, perseverance, and patience.

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Conclusion

The decision to buy a franchise is not one that should be taken lightly. It requires a lot of research and thought before making the final decision. You need to consider whether this type of business fits your goals and your lifestyle, whether you have the required resources (money and time), and whether you can commit to owning and managing a business for at least fiveto 10 years. If all these factors seem like they could work out well for you, then a franchise may be the way to go!