Multi-Unit Franchise Experts

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FAQs for Franchise Success

When a husband and wife team dreams of owning their own business, they often turn to franchising as a way to increase their skills, build their wealth, and gain a degree of freedom and flexibility. With more than 1,300 franchisors, franchise consultants, and vendor members, the International Franchise Professionals Group (IFPG) helps aspiring business owners navigate the process of identifying, investing in, and managing franchise businesses.

Before you invest in a franchise, it’s important to research and compare franchises. As data and research is the key to your success, here are the most frequently asked questions about franchising to help you identify and select a franchise that best meets your objectives.

What is a Franchise?

First and foremost, it’s important to understand what a franchise is and how it works. A franchise is a business model where a franchisor grants a licensee, or franchisee, the right to use its name, branding, trademarks, and business methods. The franchisee pays an initial fee to the franchisor in exchange for these rights. In addition, the franchisee pays regular royalty fees on a percentage of monthly sales or a flat fee, according to the terms of the franchise agreement.

The most common example of franchising is a restaurant. A franchisor such as McDonald’s licenses its name and trademarks to franchisees. The franchisor provides training, product supply, site selection advice, and other business methods to the franchisee, who in turn, opens and operates a restaurant.

What are the Benefits of Owning a Franchise?

When choosing a business opportunity, many aspiring entrepreneurs choose a franchise because of potential benefits. Apart from being able to operate your own business, buying a franchise allows you to use a proven operating system and benefit from the franchisor’s excellent marketing and brand-awareness.

In addition, franchisors provide initial and ongoing training and support, thereby reducing the risks related to launching a business from scratch. Plus, you have access to better financing, as lenders view franchise businesses as lower risk investments.

What is the Difference Between a Franchise and Licensing?

Another common question is the difference between a franchise and licensing. Basically, when you purchase a franchise, you are entering into a long-term relationship with the franchisor. The terms of the franchise agreement include a payment from the franchisee to the franchisor, which is typically in the form of a franchise fee and/or royalty fees.

In licensing, however, a business grants the right to use its product or brand to another business for a fee, but doesn’t provide a comprehensive operation system and ongoing assistance.

What are the Steps to Buying a Franchise?

There are a few steps that must be completed in order to purchase a franchise:

  1. Be prepared. Investigate your market and available franchises, consider your financial situation, and create a plan for your business.
  2. Do Your Research. Be sure to research the franchisor and inquire about top franchisees and their operations.
  3. Submit an Application. Once you’ve decided on a franchise, complete the franchisor’s application.
  4. Complete Due Diligence. You will need to verify the franchise’s claims by conducting further research and talking to other franchisees.
  5. Negotiate the Agreement. Discuss pricing and other aspects of the franchise with the franchisor.
  6. Rise and Shine. Launch your franchise following the franchisor’s operating procedures.

These steps should help you better understand the process of buying and investing in a franchise business.

What are the Most Important Questions to Ask Before Buying a Franchise?

Choosing the right franchise is essential to your success. To make sure you’ve made the right decision, here are the top questions to ask before buying a franchise:

  1. What’s the expected return on investment?
  2. How much experience does the franchisor have?
  3. Does the franchisor offer ongoing support?
  4. Are there ongoing royalty or marketing fees?
  5. What are the terms of the franchise agreement?
  6. Are there restrictions on territories or competitors?
  7. Is there liquidity or an exit strategy?

These questions will help ensure that you’re investing in a business that can offer the level of support you need to be successful.

Final considerations

Investing in a franchise is a big decision. Aspiring business owners need to remember that franchising is no different from starting any other business in terms of risk and success. Thorough research, including retail industry trends, market analysis, and financial forecasts, is essential to reach your long-term success goals.

By understanding the most frequently asked questions and the steps to buying a franchise, you’ll be in a better position to make an informed decision that aligns with your goals.

Topics:

franchising,

franchise business,

franchise agreement

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