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Franchise FAQs: What to Consider before Investing

Are you interested in investing in a franchise business? Investing in a business can be an excellent way to build wealth for retirement. Before you jump in, you should understand all aspects of franchising to ensure your success. This article addresses frequently asked questions about franchising to help you make an informed decision.

The International Franchise Professionals Group (IFPG) is a membership-based franchise consulting network comprised of more than 1,300 franchisors, franchise consultants and vendor members. Our purpose-driven mission is to guide aspiring business owners through the process of identifying and investing in franchise businesses with integrity, ethics, and collaboration.

What Is a Franchise?

A franchise is an agreement between a franchisor and a franchisee, which grants the franchisee the right to use the franchisor’s brand, business operation system, trademark, and proprietary products or services. The franchisor typically provides guidance and assistance in exchange for an initial payment and ongoing royalties.

What Are the Key Terms of Most Franchises?

Most franchises come with certain key terms that must be mutually agreed upon. Commonly, there is an initial fee, ongoing royalties, and a term of agreement that are specified in the franchise contract. The franchisor often requires the franchisee to have a certain amount of liquid capital available, and they may have a set of standards the franchisee must adhere to in order to maintain their franchise agreement.

What Are the Benefits and Risks of Investing in a Franchise?

At the outset, you receive instant brand recognition and expertise, and your business can open and generate revenue quickly compared to starting from scratch. Additionally, because you’re part of a recognized chain, you may qualify for more favorable bank loans and financing terms. Also, unlike many independent businesses, franchises offer successful systems and structure that can guide and protect franchisees.

On the other hand, you typically pay more to start a franchise than you would to start an independent business. Also, you may be faced with inherent limitations by being part of a franchise, such as meeting requirements and using predetermined supplies or products.

What Should I Look for in a Franchise to Invest In?

When considering a franchise to invest in, understand your investment and whether it is a good fit for you. Consider whether you have the necessary capital to open the franchise, if you have access to a dedicated support system, and how long the franchise terms are. Research the industry to have an idea of business portion sizes, stories, profit margins, and the rebound time after a crisis.

You must also look at the brand. Does it provide a service or product that is proven to be successful and profitable? Can you find any existing store success stories? As far as location, how much foot traffic is in the area? Are you in a competitive landscape?

Assess the investment fees and licensing agreement. How much is the licensing cost and royalty fees? How can these be negotiated?

What Is the Franchise Discovery Process Like?

When you are interested in investing in a franchise, the process begins with a discovery and research phase. During this phase, you will learn more about the franchisor and their system, review the opportunity, discover the industry, and learn more about the costs and business performance.

During the consultation phase, you will continue to evaluate the business opportunity, discuss the next steps, and enter into negotiations for the franchise agreement. After signing the agreement, the franchisor will work with you to open the franchise, build out the store, and launch.

By understanding the franchise process before entering into contractual agreements, you better the odds of having success as a franchise investor. The International Franchise Professionals Group (IFPG) is an excellent resource for budding entrepreneurs or business owners looking to invest in franchises. Our franchise consulting network includes more than 1,300 franchisors, franchise consultants, and vendor members who are available to guide you through the process.





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