Are you considering investing in a franchise business? The International Franchise Professionals Group (IFPG) is here to help guide you through the process. Aspiring entrepreneurs often have questions before taking the plunge, so we have put together some of the most commonly asked questions about investing in a franchise.
Establishing a franchise business requires a substantial investment of both time and money. The goal is to purchase the business rights and product, which may have been previously developed and tested, and benefit from the support system provided to ensure success. To assess a franchise opportunity, there are a few key questions you should ask before actively pursuing the endeavor.
What to Consider when Buying a Franchise?
One of the most important elements of purchasing a franchise is understanding the market. Are there a variety of customers within the market looking for the product or service, or is the market saturated? Research the competition, both direct and indirect, to understand who the customers may be. Ask questions about the franchise’s industry standing, marketing and promotional efforts, advertising methods, and customer loyalty.
Once the market research is done, it is time to investigate the franchise opportunities further. What type of financing is available? How much money do you need to invest in the business? What type of training will the franchisor provide? How will the franchisee be supported after the sale? Are there any unexpected costs?
What Disclosures Should I Request?
As the new owner of a franchise, you should receive certain disclosures that are required by state and federal laws. A franchisor is mandated to provide the Franchise Disclosure Document (FDD), which outlines the franchisor’s history, franchisee rights, and key information about investments, contracts, and financials.
The FDD should also include information on the territory you are promised, how much ongoing support you’ll be receiving, the fees you will be paying, and any other relevant disclosures about the business. It is important to read and understand this document thoroughly before signing any agreements.
What Does Financing Typically Entail?
Franchise financing usually involves a limited amount of up-front capital and the assistance of the franchisor and other investors in order to cover costs. Banks and other financial institutions usually view franchises as low-risk investments, so it is often easy for franchisees to obtain financing. Many franchisors have relationships with preferred lenders, such as banks and Small Business Administration–affiliated programs, which can provide attractive financing options.
Are There Lifestyle Considerations?
Running a franchise business often requires a substantial lifestyle commitment. Many franchisees report working longer hours than they originally anticipated, and the business can end up taking control of a large portion of their lives. It is important to be aware of the lifestyle commitment before investing in a franchise, as the business often comes first when decisions need to be made. That being said, owning and running a successful franchise business can be highly rewarding and provide a steady source of income.