Literary Lawyer blogs

Buying into a franchise can very well look like a stable decision for several reasons.  However, it may not always prove to be as glamorous as it seems.  It is important to do thorough research into the franchise before you make your move, no matter how successful the company appears.  Below are six things to consider when looking to buy a franchise.

1. Consult existing franchisees.  Their phone numbers and addresses are in the Franchise Disclosure Document.  Call several of them to see if they are happy with their franchise.  Are their sales near what they expected?  Are their costs as projected?  Are they profitable?  What are their dealings like with the franchisor?  Does the franchisor provide them with help and guidance?  This is the most important thing that you can do before buying a franchise.
    
2. Look for system growth.  What is the competition like for the business you are opening?  This involves national, regional and in the immediate vicinity of the franchised location you are opening.  Is the market saturated or is there room to grow for the system?
    
3. Capital necessity and profitability.  How much money will you need to put in to initially open the franchise?  What capital will I need to put in to run the business until it becomes profitable?  Often, new businesses lose money the first six months to a year.  Are you able to fund those losses?  You need working capital!
    
4. Room for freedom.  What can and can’t you do in operating your business?  Can you sell merchandise of your choosing? Can you advertise on the internet or social media? In today’s world, that is an important and growing means of distribution.  Without the internet, you may not survive.  Can you add your own ideas to the business?
    
5. Know your boss.  What obligations does the franchisor have to you?  Usually, the only rock-solid obligation the franchisor has is to let you use its name and mark in the operation of your franchise.  Everything else is usually in the franchisor’s sole discretion.  Therefore, look at what they do.  Do they help with operations?  Do they provide useful marketing?  Do they listen to the franchisees’ ideas to improve the business?  Do they have a cooperative attitude or do they look at the franchisees only as a profit center?  Beware that even good management can change.  You are buying into what is supposed to be a long-term relationship.  The people you deal with now may not be there in a couple of years and the corporate philosophy can change.
    
6. Stability in nature of business.  Can the franchisor fundamentally change the nature of the business?  I have seen franchisor’s totally change the product mix, the source of products and the right to purchase “unapproved products” for sale.  This can affect your sales and profitability.
    

Please remember to consult your franchise attorney for more advice on this topic.  There about a hundred more considerations to be made before buying a franchise.  However, these six tips are a great place to start.  

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