Tuesday, August 18, 2009

Should I buy a franchise?

Franchising is a popular way for entrepreneurs to fast-forward their small business ownership ambitions. Franchisors provide a tested and proven base structure of the business, freeing their franchisees from having to invent the operational wheel. Franchisors also provide ongoing guidance, innovations, and tested marketing materials. And new opportunities emerge on an almost daily basis.

But even with its many attractive advantages, franchising has many risks and challenges that need to be considered. The biggest mistake is believing that franchises never fail. Although the failure rate is much lower than that of independent businesses, the franchisee still must have the necessary commitment and drive to make the franchise successful. Seek legal counsel with expertise in dealing with franchisors to review all documents before making your final decision.

Purchasing a franchise also requires a substantial financial commitment, one that may require applying for a small business loan. Franchise owners also have no special legal protection after they purchase the business. The Uniform Franchise Operating Circular (UFOC) protects the buyer before the sale, but when it’s signed, you are legally required to abide by its rules and requirements.

That’s why it’s important for prospective franchise owners to thoroughly research their franchising opportunity. Don’t rely solely on the Internet. Literally “walk the street” and ask people if this kind of business is needed in the neighborhood. Study the competition, what are they doing, and how can you do it better.
In researching franchisors you plan to work with, make arrangements to visit other locations and examine their processes. Ask the owners if they would buy the franchise again, if the franchisor is providing enough support, if the experience is living up to their expectations, and if they are meeting their business goals. These relationships will also be helpful should you decide to move forward with the franchise purchase. You can develop a network of friends that have the same base knowledge and abilities, and can serve as a source of help when you have questions or good ideas to share.

And as with any other type of small business, you’ll need a thorough, well-crafted business plan to map your franchise’s growth strategy. Preparing a business plan will help you determine where you want to go, and the best way to get there. You’ll also be better able to set experience and performance milestones for steps such as purchasing additional franchises.


Richard Strug
Greater Princeton Area SCORE (Chapter 631)
Serving Mercer and Middlesex Counties

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