Is franchising the right move for you? If you’re ready to give up the corporate career grind in exchange for business ownership, there’s no time like the present to make the leap. But before you dive in, make sure you’re ready to make the right investment. You’ll need to research the industry, find potential partners, understand the legalities, and more. The International Franchise Professionals Group (IFPG) can guide you through the pre-purchase process, but the biggest challenge lies in knowing the right questions to ask. Read on to learn more about the top 10 most commonly asked questions about franchising.
Should I buy an existing business or look for a franchise opportunity?
When considering business ownership, you’ll typically have two exit strategies: an existing business or a franchise opportunity. Buying an existing business puts the responsibility on the buyer to develop and maintain customer relationships, operations, and marketing tactics. Furthermore, you pay upfront for all the equipment, inventory, and assets. With franchising, the franchise agreement will outline your responsibilities, allowing you to plug into a proven system with support at every step. With franchising, your investment doesn’t just cover the equipment, but also the training, operational systems, and marketing assistance that comes with it.
How much investment capital do I need for a franchise opportunity?
The amount of capital you need to invest in a franchise can vary. Depending on the type of franchise and your desired location, the cost of entry can range from $40,000 – $300,000. There are smaller investments that cost around $20,000 to $50,000, but bear in mind that these typically offer less support.
How do I decide which franchise opportunity to pursue?
When you’re choosing a franchise opportunity, it’s important to narrow your search. First, check out resources like the Franchise Disclosure Document (FDD), FCPP.com, and IFPG.org that can provide a wealth of information on the franchise. You’ll want to pick franchises that align with your interests, vocation, and lifestyle goals.
Are there financing options available to help purchase a franchise?
The answer is yes. There are different kinds of financiers and lenders that offer Small Business Administration (SBA), SBA-backed, and franchise-specific loan and financing packages for those looking to buy a franchise. That being said, the requirements vary; banks and lenders may require asset-based collateral or a credit score of at least 680.
Do I need to hire a franchise attorney?
It’s always recommended that business owners seek professional legal advice, especially if they’ve never been part of a franchise before. Attorneys knowledgeable in franchising can help you review the documents before you sign on the dotted line and also offer guidance in any negotiations or disputes you might face down the line.
What is the best type of franchise for me?
That depends on your goals and skills. Do you have a background in the retail industry? Or perhaps you’re comfortable with the restaurant business? There are plenty of options, and when you have a better idea of your ideal business, consult with an IFPG franchise broker- one of many resources available to you.
What kind of training and support does the franchisor offer?
Franchise agreements outline the consistent training that owners will receive on all aspects of the business. Depending on the franchise system, owners and staff members are typically trained on the company’s history, processes, protocols, and product knowledge. Trainings can range from e-learning courses to multi-day events held at the corporate office.
What is the royalty fee and what are they used for?
Royalties are typically calculated as a percentage of gross revenues (margin fees) or unit sales (flat fees) and are typically collected monthly. Royalty fees are the price you pay for being part of a ready-made business system, and they’re used to compensate the franchisor for continued support, research and development, advertising, and other services.
How much can I make?
The success of a business depends on the owner’s investment, effort, and knowledge. However, each franchise company provides an Item 19 Disclaimer in the FDD that can provide an estimate of the amount of revenues your franchise can generate per year.
What is included in a Franchise Disclosure Document (FDD)?
Prior to signing a franchise agreement, franchisors are required to provide a Franchise Disclosure Document (FDD) that includes information such as an overview of the company and its structure, fee structure, terms of the franchise agreement, and information relating to franchises that are already in operation five to ten miles from the prospective franchisee’s proposed location.