The current economic depression has spawned widespread economic uncertainty and distress. With the drastic job losses and the implications to retails sales, many individuals are considering whether investing in a franchise could be a viable option for financial stability. As is the case during turbulent times, it is important to be well-informed and to ask the right questions before taking on the responsibility of owning a franchise. The International Franchise Professionals Group (IFPG) has compiled a comprehensive list of Frequently-Asked-Questions (FAQs) related to franchisee investing, to help guide potential investors in understanding their options and potential risks.
The following guide answers such questions as “What are the most important considerations when buying a franchise?”, “What are the differences between buying a franchise, starting a business, and business acquisitions?”, and “What are the advantages of investing in a franchise?”. As the answer to each of these questions includes complex and varying factors, they serve as the basis and foundation to help initiate your search for a franchise business.
What are the Most Important Considerations When Buying a Franchise?
When considering investing in a franchise, investors are advised to not just ask about the financials of the franchise; focus should be given to the overall operations of the business. Being part of a franchise brand means being an investor with the same strategic objectives as the parent company, such as compliance with brand requirements and policies. As such, ask about the following:
- How long is the term of the franchisor’s agreement? Some franchises have long term licenses while some offer shorter terms.
- Are there renewable options or extensions? Can the franchisee transfer the license to a new owner?
- Who provides and maintains the trademark and logo used in the franchise?
- What marketing assistance and support does the franchisor provide?
- What training and support is offered prior to and during the launch, and for continuing operations?
- How often and in what form must the franchisee report business activities to the franchisor?
- Are there opportunities for acquisitions exist within the network of franchises?
What Are the Differences Between Buying a Franchise, Starting a Business, and Business Acquisitions?
When considering investing, consider the differences between franchises, small businesses, and business acquisitions. Franchises are legal arrangements between the franchisor and the franchise a business between the two entities. The franchisor provides assistance with start-up operations, training, and ongoing support; as well as the benefit of having experience and expertise.
Small businesses, on the other hand, are locally owned and managed. While small business owners still must abide by general regulations, there are fewer rules and restrictions as compared to franchise businesses. However, small business owners can often find themselves tied up in the complexity of more administrative and operational tasks with fewer resources, within a more competitive market landscape.
Business acquisitions, meanwhile, offer a quick entrance into the marketplace and the ability to begin generating immediate income, along with the brand recognition and customer base already established. When considering this approach, consider the age of the business, its past performance, and the nature of the existing customer base.
What are the Advantages of Investing in a Franchise?
While investing in a franchise requires attention to detail, in the research preparation process as well as in the post-acquisition maintenance, the advantages of investing in a franchise should not be overlooked.
The benefits include:
- Access to existing marketing tools and strategies of the parent company: Franchises aim to produce proven strategies and plan-of-actions to online and offline marketing.
- Opportunity to benefit from the mentorship of the franchisor: Franchisees get to benefit from the franchisor’s knowledge and experience working in the franchise industry, as well as any additional training offered.
- Ability to buy into an established brand: Franchises will often benefit from the recognition and confidence in the product already established by the specific brand, meaning that customers do not have to spend as much time determining whether the product is a good fit for their lifestyle.
- Access to a community of individual franchisees: Working with a franchisor may provide access to a close-knit group of entrepreneurs in the same industry, providing invaluable networking opportunities with potential partners and industry contacts.
Investing in a franchise is an interesting option for many individuals who are faced with economic hardship, yet it is important to do due-diligence. Review the details from prospective franchisors and ask the right questions to ensure the best opportunity in minimizing risk and realizing a successful venture.