3 Things You Should Know Before Buying a Franchise

3 Things You Should Know Before Buying a Franchise

In simplest terms, a franchise is an arrangement entered into by the owner of a specific business and a second party. The agreement permits the second party, or franchisee, to operate an identical business using the original owner's unique brand and other intellectual property. In turn, the franchisee pays the franchisor certain fees for that privilege.

Franchising is a path that many first-time business people take because it poses less risk than attempting to start a new business on their own. On the other hand, the franchise package ideally includes everything you'll need to successfully launch and profitably run a new business. The franchisor provides for product or raw materials, supplies, equipment, and all advertising and promotional support. And because you, as the franchisee, are trading on an established brand name and a proven system of operations, it's easier for you to build up your customer base.

However, there are some important things you need to be aware of before you consider investing your hard-earned cash in purchasing a franchise.

1. A percentage of your profit is paid to the franchisor

Once you sign a franchise agreement it's binding upon you for the period of time specified. Accordingly, you'll be subject to all its terms for as long as you are a franchisee operating under the franchisor's brand. And one of the most important aspects of your franchise agreement requires you to pay the franchisor regular royalties and certain recurring fees. That's your continuing obligation and there's no way around it.

2. The franchisor may restrict your choice of territories, suppliers, and employment policies

Franchisors want to have full control of each of their franchisee's operations and the quality of products or services that they're selling. Therefore, as a franchisee, you won't have a great deal of freedom when it comes to where you purchase your products, equipments and supplies. Or how you train and compensate your employees. Or the size and definition of the trading area you're permitted to serve. Since all of these factors are largely beyond your control, it may prove more difficult, if necessary, to reduce your overhead.

3. You're entitled to seek support from the franchisor

Most franchisors are more than willing to provide training and direction to their franchisees. It's certainly in the best interests of both parties to minimize unit errors and mis-steps in order to maximize productivity and profits. In keeping with that objective, it is your right as a franchisee to request periodic meetings with the franchisor or his employees so that they can help you work through any problems or concerns that might have a negative effect on your business.

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