7 Basic Steps To Take When Purchasing A Franchise

Posted on Jun 21 2018 - 8:20pm by Editorial Staff

Starting a new business from scratch is not without its share of challenges, which is why many people opt for purchasing a franchise and becoming a part of an already well-established brand. When buying a franchise, you don’t have to conduct market research because your franchisor has already done that, and you don’t have to build a brand image, since the brand is already well-known.

Moreover, you can avoid making startup mistakes that many entrepreneurs make, as the franchisor provides you with proper training and an effective system of operation that has proven to bring business benefits.

While there are both pros and cons of buying a franchise, the advantages definitely outweigh the disadvantages. If you’ve made the decision to buy a particular franchise, there are certain basic steps that you need to take, so read on to explore them.

Make Sure You Have Enough Working Capital

Apart from the one-time franchise fee that you need to provide in order to use a particular trademark and business concept, you also need to pay a weekly or monthly franchise fee (royalty fee), which can range from 2-10% of your gross sales revenue.

You also need to make sure you have enough capital to operate your business and provide your employees with salaries and benefits that go with the job. It may take some time until you generate a consistent cash flow, so be sure to leave enough additional capital on the side.

Buy or Rent a Facility

If you cannot afford to buy a facility, you can rent one, but you need to be aware of all the costs that come with it. In addition to your monthly rent, you will need to pay a security deposit for the building. The gas, telephone, and electric companies require a security deposit as well, and you cannot use their services until you pay the deposits.

Also, when renting a building, you need to pay for a leasehold improvement, but your franchisor may provide you with the money for it, so be sure to check that in advance.

Get Proper Equipment

It goes without saying that you need to get proper equipment to operate your business, but the good news is that most of the equipment you will need, no matter the type of business, can be bought with long-term payments.

You can easily get a bank loan to purchase the necessary equipment, since almost every bank provides loans for equipment, as it can serve as a collateral, that is, security.

Purchase Business Signs

Business signs are vital for every organization, as they raise brand awareness, increase brand exposure, build credibility, and attract a lot of customers. When it comes to buying a franchise, you don’t need to make an effort to create eye-catching signage, because your franchisor has already created signs that have proven to be effective.

The franchisor will provide you with a sign package that you must buy in order to operate and market the business. They need to make sure that they maintain brand consistency, so they cannot have you creating and putting up custom business signs.

Prepare Your Opening Inventory

This is yet another step that doesn’t require too much work on your side, because your franchisor will tell you everything about the opening inventory that you need to prepare. Every franchisor has their own unique opening inventory requirements, and the inventory usually involves supplies for at least two weeks (of course, this depends on the business).

Pay for the Advertising

When purchasing a franchise you will also need to pay a franchise advertising fee for effectively marketing the business. If you plan on buying a franchise from a very large company, you would probably need to provide a fee for advertising the business nationally, so that the business concept can be successfully enhanced.

Know the Franchise Law

Before you sign any documents and buy a franchise, you need to be fully aware of all the legal aspects of owning a franchise. Make sure you learn everything about the FTC’s (Federal Trade Commission) Franchise Rule, which is designed to provide franchisees with protection, that is, prevent any deception and help you make an informed decision before the sale.

The Franchise Rule requires franchisors to provide all the essential information (the Franchise Disclosure Document) to franchisees at least 10 days before the sale, so that franchisees can thoroughly review everything and carefully consider whether or not they should actually make the purchase.

As you can see, there are a lot of costs included in buying and owning a franchise, but you would need to invest substantially more if you were to start your own business from scratch. Therefore, purchasing a franchise is definitely a very smart decision, as it can bring you plenty of benefits along the way and help you secure your financial future.

About the Author

Editorial Staff at I2Mag is a team of subject experts.