Every year, thousands of aspiring entrepreneurs decide to take the plunge and invest in a franchise business. With so many options available, it can be daunting to make an informed decision. To help, we’ve gathered some of the most frequently asked questions we receive at the International Franchise Professionals Group (IFPG) about the process of investing in a franchise–and our answers.
What is a franchise?
A franchise is a type of business model that allows the franchisor–the existing business that developed the model and owns the trademark–to license their trademarks and intellectual property to an independent and unrelated business, or franchisee. The up-front cost of a franchise–known as the franchise fee–provides the franchisee with the right to use the existing business’s logo and methods of doing business, as well as other benefits and support from the franchisor.
What are the advantages of owning a franchise?
There are many advantages to owning a franchise, including the potential for greater profitability than an independent business, access to proven products and services, and the benefit of existing consumer brand recognition. With a franchise, you also get an existing brand name, an established customer base, and training and support from the franchisor to help you succeed.
How do I choose a franchise I want to invest in?
There are several factors to take into account when choosing a franchise to invest in. To begin, you should identify your goals. Consider the industry you want to invest in, the type of franchise you’re interested in, the scope of the business, and any geographical limitations. Additionally, you should assess the franchisor. Who have they partnered with? What is their track record? Are they involved in community initiatives? Do they have any positive or negative reviews? Lastly, you should understand the cost of the franchise fee.
What kind of legal agreements should I expect?
A franchisor may require several documents to be signed prior to granting the right to use their trademark and intellectual property. These documents typically include a Franchise Agreement, Franchise Disclosure Document, Non-Disclosure Agreement and/or Franchise Authorization Document.
What qualifications do I need to meet in order to be approved?
Each franchise has their own set of qualifications for prospective franchisees. Generally, franchisors look for individuals who are financially stable and have business experience. You may be required to provide proof of your financial stability, such as a credit report, or a background check. You may also be asked for references from bankers and previous employers.
How do I finance a franchise?
There are several ways to finance a franchise. Many franchisors offer financing options for prospective franchisees, such as loans or assistance with the franchise fee. You may also be able to pursue loans from traditional lenders, such as banks, or turn to family and friends for equity investments in the business. Lastly, you could pursue alternative financing methods such as crowdfunding or angel investors.
Are there risks associated with owning a franchise?
Like all businesses, franchises come with inherent risks. It’s important to do your due diligence when researching franchisors and look out for potential legal problems. Additionally, it’s important to consider the possibility of a franchise not performing as expected due to the changing market environment, higher than expected operating expenses, or other issues.
How can the International Franchise Professionals Group (IFPG) help me?
The International Franchise Professionals Group (IFPG) is a membership-based franchise consulting network consisting of more than 1300 franchisors, franchise consultants and vendor members. We offer a variety of services to help aspiring business owners identify and invest in franchise businesses, including research and discovery, expert consulting, training programs, and an active online forum for peers to connect with each other.