Precautions When Buying a Franchise

Businessmen handshake

Many people who rush to buy a franchise end up having a terrible experience. There are many critical points to consider when buying one.

It’s a proven fact that Americans have an ongoing love for hamburgers. A typical American consumes three of burgers a week, bringing the national total to about 50 billion burgers annually. That makes the burger business a multibillion-dollar industry that entices many entrants. However, before going out to buy a burger franchise, you need to tread carefully.

Crunch the numbers

Buying a popular franchise doesn’t automatically translate into success. You need to dig in your heels to make the business successful enough to turn a profit. It’s imperative that you understand the profit margins involved before committing to the purchase.

Part of getting a franchise entails giving up a portion of your total revenue to the franchisor. You have to pay for the privilege of using their trade name and brand. You need to know how the payout impacts your profits margin.

Working with a reliable expert, you can take a fine tooth comb on the often-complex numbers. You want to be sure that you’re getting value for your money and that the profit margins are acceptable. The numbers can offer great insights into the performance of a typical franchise store.

Dig into the history of the chain

You need to be sure that your prospective franchisor is not hiding skeletons that will break free from the closet as soon as you seal the deal. As part of the preparation process, the franchisor will supply you with the Franchise Disclosure Document, which will give you all the information that you need to know about the business.

Be sure to retain the help of an expert while reading through the document to be sure that you understand even the fine print. Dig into the litigation section as it can offer you insights into the conduct of the franchisor. If other franchises are always taking them to court over unfair treatment and exploitation, that’s a huge red flag.

The document contains the addresses of the previous and current franchise owners under the chain. Reach out to former owners and get their take on owning a store under that brand. Be sure to reach out to a few current owners as well. Doing so will help you reach an independent and informed decision.

Take stock of your skills

Businessman working

While a franchisor will supply you with a proven blueprint to help you get your business off the ground, you have to do the rest of the heavy lifting. Take a moment and reconcile your skills and ability to run such a company. Many people sink their live-saving into a franchise only for it to collapse due to mismanagement. You need to be aware whether you have the skills to run such a store or you would need to hire a manager for that. Alternatively, you can take the time to learn the necessary skills.

Buying a franchise increases your chances of success when trying your hand in business for the first time. However, you need to tread carefully to get the best possible deal. You need to be sure that you have the necessary skills to get the business off to flying start.

Scroll to Top