September 5, 2019

Should You Buy a Franchise? 6 Tips to Help You Decide

Buying a franchise sounds like a no-brainer for success: Buy an opportunity for a well-established brand such as McDonald’s or Dunkin’ Donuts, open it, and crowds will flock to your new store, right?

Unfortunately, it’s not that easy.

Many people think that buying a franchise is a slam-dunk deal, but according to a 1994 study by Wayne State University, the survival rate for franchises was 65.3 percent after four years, compared to 72 percent for independent businesses.

The franchise business can be lucrative, but it’s filled with risks and legal paperwork, and only certain people are likely to be successful at it.

Tips to Buying a Franchise

Should you buy a franchise? Here are some tips to help you decide:

  1. Do an assessment of yourself. Business experts refer to a “franchise personality”: According to Franchise Gator, those skills include being a leader, communicator and risk-taker; a willingness to learn; adaptability; thick skin; team player; financial knowledge; patience; passion and being results-driven. You can even take a quiz at Entrepreneur magazine to find out if you’re franchise material.
  2. Do your homework. The Federal Trade Commission offers an excellent guide to buying a franchise and includes advice on finding the right opportunity, evaluating earnings, paperwork, and links to report fraudulent practices. Start here.
  3. Figure out costs. Starting a franchise requires a lot of money upfront: anywhere from $10,000 to $100,000, depending on the business. Other costs include acquiring space for your franchise, utilities, marketing, supplies, royalty fees, inventory and payroll. Franchisegrade.com offers a franchise affordability calculator that will help you determine if buying a franchise is worth it.
  4. Weigh the pros and cons.
    Pros include:

    • Proven track record. If the business is successful, then they have a formula for creating a good product. All you have to do is follow that formula.
    • Marketing and advertising. You’ll benefit from national advertising campaigns, but you may have to do some local marketing yourself.

    Cons:

    • You have to follow the franchise’s rules. That gives you less ability to make decisions on your own
    • High startup costs. See above.
  5. As the business goes, so goes your franchise. Nationwide trends, scandals and competition may drive some businesses out of the marketplace, which means trouble for your franchise.
  6. Talk to people. These include other franchise owners (specifically with the business you’re interested in), an attorney who specializes in franchises and business startups, and your accountant. You’ll learn a lot of valuable information from them. Always consult with an attorney, who can help you look through the paperwork and see if the deal is advantageous for you.

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