If you’re thinking of investing in a franchise, it’s important to be sure to keep your money safe. It’s a major investment and you don’t want to do anything to lose your money. Franchising laws are very complex and you’ll need a lawyer to help you understand the details as well.
Here are some frequently asked questions from those who want to invest in a franchise.
- What is franchising? – It’s a contract that binds partners into a business model that is dictated by the franchisor or owner of the business. The franchisee is an independent operator but subject to the rules of the contract or franchise.
How safe is my money? – Like any business, you are always at risk of losing your investment. However, often you can sell the franchise to recoup some of it. The best way to prevent this from happening is to research any opportunity thoroughly and let a lawyer read contracts before you sign anything.
Is the opportunity legitimate? – You can check the opportunity out on Scambusters.org as well as check out any earnings claims by searching for financial disclosure documents online. Also, ask for a list of the last five to ten people who have purchased franchises so you can talk to them. You don’t want to talk to only the ones they want to tell you about.
How much money do I need to invest? – Each franchise is different in terms of your initial investment, but you should also learn about what your ongoing investment will be. For example products, marketing, royalties and more.
How much will I earn? – You should be able to find out what the average franchise investors are earning via their disclosure forms. It’s a good idea to check, because one idea you should have in mind before investing is how much you want to earn.
What is the timetable from start to the grand opening? – It will depend on the franchise that you purchase. Do you have a space in mind? Do you need to buy land? Do you need to have the business built? Your franchisor usually helps with these aspects and will be happy to let you know how long it takes. You can also ask the other franchisors that you call how long it took them. Write down their answers so that you can find an average.
How long will it take me to profit? – Each franchise likely has stats that will back up how long you will take to become profitable. Usually, a well-known franchise becomes profitable faster than a completely unknown business.
Do I need to hire a lawyer? – Yes. Every person who is entering a franchise opportunity should hire their own independent lawyer who is experienced in franchise law. This will help protect you from making any mistakes.
Is buying a franchise safe? – It’s safe if you go through the right process to properly research and identify the best candidates for you to buy into. Therefore, it’s only as safe as the amount of due diligence you’re willing to put into the process of finding the right franchise for you.
What fees are involved? – Each franchise has different fees involved such as royalty payments, product purchases, and more. Make sure you get a good list of everything you’re required to purchase from the franchisor.
Can I get financing? – If you have good credit, plus the liquid cash required, you can usually get financing from a bank or from the franchisor. It’s up to you how you proceed. Sometimes you can get better deals from the franchisor.
How is competition handled? – One thing you want to know for sure about any opportunity is how the franchisor limits competition. How many franchises do they allow in a specific area of the country and more specifically your local area? Also, do they make you sign a non-compete clause?
What should I consider before buying a franchise? – You need to make sure that the business is something you will like doing, and has the potential to provide the type of income you need to earn each year. There is no point doing any franchise that won’t provide a good income in the manner you want to earn it. For example, some franchises allow for absentee ownership and still earn a profit, while some do not.
There are a lot of questions to ask and answer before you make your investment. Ensure that it’s the type of business you always wanted to buy into, as well as that your skillset matches. Understand that it is a business, and if you can’t earn a profit you will lose your money. Therefore, be ready to jump in and follow the franchisor’s plan to make the most profit. If you chose the right company, they already know how to do it - no need to reinvent the wheel.