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Investing in Franchise Businesses

Aspiring business owners looking to get into the franchise game will have some questions. Whether it’s their first venture into a franchised business or their tenth, it’s important to understand the ins and outs of such a risky investment before committing any hard-earned money. For first-time investors, the International Franchise Professionals Group (IFPG) offers resources to assist in the process. To better equip you to make the best decision, here are some frequent questions about investing in and running a franchise business.

Is Franchising Right for Me?

Franchising can be a more secure way to start a business. The key is to find the right franchise. You’ll need to make a comparison between the different options based on factors such as initial investments, royalty fees, and potential profits. Aspiring franchisors should review the areas of expertise required to run a franchise, including marketing, operations, finance and customer service, to see if they have the necessary skills and resources.

What are the Costs Involved?

Franchise fees vary by franchisor, but typical costs include a royalty fee, a franchise fee, and start-up costs. A royalty fee is usually a proportion of the gross revenue, and a franchise fee is one-time payment for the right to use the brand’s name and products. Start-up costs cover items such as significant capital investments to fit out the business and operational costs such as inventory, staff, equipment, and rent.

What is the Best Way to Find an Appropriate Franchise?

The range of franchises available is vast, and has different requirements for different parts of the country. It is important to research franchise opportunities that match your budget and skills. You can look up franchises in the IFPG directory or search online. There are also franchise brokers or consultants who specialize in providing advice and assistance to franchisors; they can provide an objective and knowledgeable review of the best franchises for you.

Who Supports the Franchisee?

Franchisees can expect to receive a certain level of support from the franchisor. This support usually includes ongoing operational help, which may include training and guidance in setting up your business. Franchisors also usually provide marketing and promotional advice and access to a network of other franchisees.

How Much Time Will the Franchise Require?

It’s important to factor your own time commitments into the equation. Operating a franchise requires working long hours, sometimes seven days a week. Franchisees also need to attend regular meetings, phone conference calls, receive training, and update the franchisor on performance.

How Quickly Can I Expect a Return on my Investment?

Franchisees should always consider their return on investment (ROI). Timeframes vary because of the complexity and competitiveness of the industry. Generally, there is a range of six months to five years until the franchise turns a profit.

Are There Any Legal Guidelines I Need to Consider?

Federal regulations are in place to protect anyone considering purchasing a franchise. The Federal Trade Commission has issued FTC Rule disclosure requirements that all franchisors must meet when selling a business. It’s also a good idea to speak to an attorney who specializes in business law and franchising.

Can I Negotiate the Terms of the Agreement?

The franchisor will provide franchise agreements that generally can not be negotiable. However, the franchisor may be willing to make certain concessions depending on the scope and size of the deal. It is ultimately up to the franchisor to accept or decline requested changes to the franchise agreement.

Before investing in a franchise, take the time to do research so you can make the best decision. Most aspiring franchisors seek out the help of an experienced franchise broker or consultant who can evaluate the different franchises and guide them in the right direction.



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