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Follow This 5 Step Process When Buying a Franchise

 

by Ed Teixeira

If youíre one of the thousands of people looking for that special franchise opportunity for you, here is process that you should follow. Each step is important in its own right and if you follow through your odds of success will increase.

1. Identify your business strengths and weaknesses so youíll know what type of business youíre most qualified to operate. At this point donít even think franchising but rather what you can do best. For example, if someone approached you to manage a business how positive would you feel about managing different kinds of businesses? For example, fast food, B2B, home care, fitness, retail, home services, etc. Your objective is to identify not necessarily what business youíd like to operate, but rather what you can operate successfully.

 

2. Now you need to establish the amount of capital you have available to invest in a franchise. Consider all of your sources of capital including savings, home equity loan, investments, family and other assets. Once youíve identified the amount reduce it by 25%. In other words if you $150,000 to invest reduce that by $37,500 to $112, 500, which is your amount to invest. The reason for this is that in almost every single case the original franchise investment is not enough. There are so many things that can go wrong with an initial start-up you had better have some extra capital just in case. Plus if things donít work out, you wonít lose everything.

3. In this step itís selecting some franchises that fit your business profile and investment level. From franchise directories to Internet searches to franchise ad portals, youíll want to identify the type of franchise at the investment level that matches your financial resources. A good idea is to do a simple business plan that will force you to answer some important questions about the franchise sector.

4. Once youíve narrowed your choices down to several franchises, youíll want to obtain a copy of their Franchise Disclosure Document and begin the process of engaging a franchise attorney to help you perform your evaluation process. I would suggest you narrow your choices down to three franchises that meet your criteria. If you want some guidance in this step visit my website, franchiseknowhow.com and look at the articles Iíve written under Buying a Franchise. The articles cover just about every subject dealing with franchising, including some on what questions to ask. Be sure you have a franchise attorney assist you, when reviewing the FDD.

5. Contact existing franchisees and where possible franchisees that are no longer with the franchise. I consider this so important that I include it as a separate step. You should speak to any many franchisees as possible and donít limit them to those names supplied by the franchisors. Try to speak to mix of new franchisees and those that have been in the system for several years. Ask lots of open ended questions and focus in on the following key areas:

  • Has the franchisee achieved their financial expectations?
  • Does the franchisor provide good training and support?
  • Do they intend to renew their franchise?
  • What are the most important skills needed to operate the franchise?
  • Any surprises after buying the franchise?

If youíre considering investing in a franchise then follow my 5 step process and youíll have a better chance to be successful.

© 2015 FranchiseKnowHow, LLC

Ed Teixeira is the President of FranchiseKnowHow.com and Chief Operating Officer, FranchiseGrade.com. He is a former franchise executive and franchisee. He can be contacted at 631-246-5782 or at  franchiseknowhow@gmail.com

 

 

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