What Should I Look for Before
Buying a Franchise?
If you buy a franchise, you give up some of the freedom to run the business any way you want. But statistics show you also boost your odds of success, since potential customers gravitate toward well-known names.
The important thing is to buy the right franchise?and avoid potential business flop-portunities. By purchasing a franchise, you often can sell goods and services that have instant name recognition and can obtain training and ongoing support to help you succeed. But be cautious. Like any investment, purchasing a franchise is not a guarantee of success, the Federal Trade Commission said.
Here are just a few of the things to consider, in addition to initial franchise fees and other start-up costs:
How much demand is there for the product or service? Avoid fads and look instead for businesses likely to generate repeat business.
How much competition will you face both locally and nationally? If too many companies are selling identical or similar products, odds are your business will suffer.
How successfully could you run the business if the franchisor goes out of business? If the franchise systems fail, you may have to operate the business on your own.
How much name recognition does the company have? The more widely recognized the name, the more likely it will draw customers who know its products or services.
How much training and support will the company provide? Find out if the franchisor offers formal classes or if most of the other franchisees just have more education or training.
Before investing in any franchise, get a copy of the franchisor’s disclosure document?often called a Franchise Offering Circular. Under the FTC’s Franchise Rule, the franchisor is required to give the prospective franchisee a copy of the document at least 10 business days before he signs any contract or invests any money. Make sure you read it. If you don’t understand it, consult with someone who does.