How to Buy a Franchise

Procedure for buying a franchise

When buying a franchise, make sure you do your homework. Franchisors, by law must provide prospective franchise owners with the company's uniform franchise offering circular (UFOC), which is a rather thick document detailing important aspects of the franchise including financial statements and any history of lawsuits.

Some Franchisors will require you submit a franchise application, which will create a profile to the franchisor as to your suitability of becoming a franchisee. If that process goes smoothly, you should set up an appointment to meet the franchisor and speak to him/her face to face.

Money

It is very important that you have a solid credit history and cash before thinking about buying a franchise. You will generally spend up front at least $35,000-$50,000 non-loaned money for the initial cost and fees, and then you will need money for operating costs, equipment, employees etc.

That is why it is very important you know what you want to get into and that you can make a commitment. Many working people, usually in their 40's are tired of working for others and think that a franchise would be great because there won't be that much supervision. This isn't exactly true. Look at the franchisor's rules carefully and make sure you are comfortable with the creative and other restrictions on the franchise. Some franchises will not allow you to decorate on your own or landscape or may insist on a certain color scheme or uniform.

Know what you are signing

The franchising system is highly regulated to provide security for the investor and franchisors, as has been said, are required by law to send potential franchisees a disclosure document (UFOC) before any money is paid or contracts are signed. You may also want to talk to ex-employees, managers etc as an extra precaution. Understanding the UFOC will provide you with a quicker start-up

As with any business, buying into a franchise is not cheap. Not only are there the up front costs, which could add up to several thousand dollars, but there is the monthly royalty that needs to be paid to the franchisor each month based on sales as well as other fees. You may need to buy from the franchisor's suppliers, which on the whole is normally less expensive.

Even though buying a franchise is steep, you must remember that starting a business from scratch is also not that cheap and will require financing. What is good though is that chances of securing a loan when buying a franchise can actually be improved, especially if it is a well-known business, such as McDonalds or Starbucks. The power of the trademark promises consumers constancy. Franchise buyers also gain because they are buying access to a proven, time-tested and well-established system.

It is always a good idea to get a franchise lawyer involved to protect your interest and to make sure the documents are in good order. Sometimes negotiations may be necessary. Some franchisors will negotiate and some will not.

A franchise may be a great investment, but remember, it takes a lot of work and you always must keep up with the franchisors request as to the way to run the business. Again, as in any business, lining up an accountant is also a great idea.