Buying a Franchise as a Startup Alternative

by Ed Martin on September 23, 2009

Why go through all the trouble of starting a microbusiness or buying someone else’s existing business when you can get a franchise? It is yet way to get your business dreams up and running. The model is simple. In return for paying certain fees you get:

  • A proven business model – avoid startup mistakes
  • Help, training and support
  • Economies of scale for purchasing and negotiating with suppliers
    Market research for starting a franchise

Of course there are some downsides to buying a franchise

  • Not so good if you want to do things your own way – have to follow the rules
  • Possible to get a good franchise but bad franchising company or vice versa
  • Complicated to get details right and to understand what you are committing to

Just like starting any other business you’ll need to consider  some things about yourself and what you want to do and how much money you have to invest  Beyond that there are some franchise-specific topics to consider:

  1. Check with the FTC so see what kind of track record the franchising company has with other franchisees. They FTC has a nice online guide  for prospective franchise purchasers as well.
  2. As you consider different franchise opportunities, read carefully each Uniform Franchise Offering Circular (UFOC). Every franchisor must provide one to prospective franchise purchasers. The UFOC lays out in great written detail the franchise offering and terms. Not understanding what it says is a big cause for later problems are failure.
  3. Find out if the business is seasonal and what others do during the off-season.
  4. Find out if the franchisor offers exclusive market areas and if you will get an opportunity for first-refusal to buy additional franchises in adjacent or the same markets. Can you buy additional franchises in other markets?
  5. Learn what are the short and long term prospects for the franchise’s industry and market. Is there good sales and growth? Learn about how is the competition doing and what plans they have.
  6. A good franchising company should offer you support with purchasing, training, finding a building location, and advertising.
  7. Before making a decision, find out if you an you work in a franchise for a while to see what it is like. Franchising companies should facilitate this request.
  8. When you’ve found a franchise opportunity that interest you, talk to existing franchisees and those who have quit or been terminated. The UFOC will have a list of them. Talk to franchise owners in your area, in a similar market, multiple franchise owners, as many different ones as possible. Find out how well are existing franchises in your market or a similar market faring. Ask them how their first year was, how much training and then support support they got, what could be better. When talking to those who have quit/failed, look for common threads to their stories. Go over the points listed above and get their responses. Ask them in person as well as in writing. Check with them to see if your goals for a franchise are reasonable and achievable.
  9.  Not all franchising relationships go well, so find out early what are the ways you can end your franchising agreement or that the franchisor can terminate it.
    Determine how well the franchiser checks out prospective buyers. You’ll like to see that they do as thorough a check on you as you are doing on them.

When looking at franchise opportunities, bear in mind that you can purchase an existing franchise from someone wanting to sell instead of getting one from the franchising company. In either case, make sure you are getting what you thing you are paying for. Get everything in writing, have legal and accounting help standing by if you need it. Going the franchise route can be rewarding, but it comes with its own perils and risks, and you’ll still have to do all the legwork and self-assessment as if you were starting a business. No shortcuts in that regard. The more you know, the better your chance for success. Keep your eyes, ears and mind open, and check everything.

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