A franchise business is one of the most advantageous investment options you can have. If you choose a reputable brand, for starters, you will be serving an already established market for your products or services.
This also means that most of the marketing and advertising will be taken care of by the parent brand, so you don’t have to invest heavily in that.
However, this is not to say that franchise businesses are a walk in the park. Otherwise, the market would be flooded with investors on this front.
Before making the investment decisions, you need to consider a range of factors to ensure you are making an informed decision.
In a nutshell, here are seven factors you need to understand before investing in any franchise.
1. The Cost and Net worth Requirements
When it comes to franchise investments, one thing is certain – they rarely come cheap. This is especially true if you are purchasing one with all of the systems in place.
When calculating the cost, make sure to factor in everything that could cost you money before, during, and after the purchase.
Most importantly, you will need to consider the set net worth requirements for you to qualify as a franchisee.
If you intend to venture into the fast food or chicken restaurant business, the Wingstop franchise owner requires a $1.2M minimum net worth for them to qualify as a franchisee.
Half of this ($0.6M) must be liquid, and they should have the capacity to run a minimum of three stores around the nation. Having the cost and net worth requirements in mind will paint a picture of just how much you need to get started.
It will also help you decide whether to continue or choose a different franchise depending on what you are putting at risk.
All the same, the franchise business entry costs will vary widely depending on a few factors. Some of these include but not limited to:
2. The Proven Systems
When you go out looking for a franchise, you’ll be looking for a tried-and-true business plan. That model will only succeed if the systems you wish to incorporate into it function properly.
On the other hand, you will be flying blind if you invested in a franchise without proper systems in place. Before giving it, a go and investing your money in just any franchise, it pays to take a look at its history and gauge its performance.
The systems in place should have a proven track record. Make sure it has everything you need, such as marketing, upsells, and even customer service. That way, you will be sure you are not going in blind.
3. Earning Potential
Without sugarcoating things, the main point of investing in any business is to earn revenue and make a profit.
Before you go out and acquire a franchise business, one of the things you want to ensure is that you can make a decent profit out of it.
Nonetheless, it is a bit tricky to predict with certainty the success of your franchise simply based on the performance of similar franchises in other regions.
So, seek to ensure that there is earning potential in the location from where you intend to operate your store.
Remember to conduct some research, looking at similar franchise businesses that became profitable nearby, as well as those that recently failed nearby.
With this information, it becomes easier to gauge and ascertain if the franchise truly has an earning potential for you.
Since the failures of others should never block your progress, consider thinking about what can be done to make the franchise profitable in case the current chances of profitability are slim.
4. Litigation History
If you’ve ever been a franchisor, you understand how critical it is to review the litigation history. Any disputes with third parties, such as suppliers or clients might have a significant influence on the franchise.
There’s no way to tell how many cases are too many, but you’ll at least have a clearer idea of what you’re buying, and you can easily tell if it’s worth your investment.
Here, the specific brand’s litigation history is a reflection of your business reputation and image in the eyes of your future customers.
5. Your Interests
If you want your business to succeed, you must not only work in it but also on it. To put it another way, your interests and passion should coincide with the franchise.
Finding out what you are passionate about is one approach you can use to help make sure you can give it your everything.
You should be interested in their culture to ensure that you fit in, and you can work effectively with the individuals behind the company.
If you are considering investing in a franchise restaurant business, it helps to be passionate about things like cooking, great food, hospitality, and customer satisfaction.
6. Territory Exclusivity
It is not always enough for the franchise to be profitable and for you to fit within the parent brand’s culture.
For the utmost profitability, it pays to make sure you can utilize all the resources from the brand within your region. Well, this is only possible if territory exclusivity is obtained.
With exclusive territory rights, the franchisor assigns to you a fixed geographic area so that only you can legally operate under the brand within the specified territory.
It helps minimize unhealthy competition and maximize profits, so make sure to ask the franchisor if they provide territorial exclusivity before investing.
7. Understand the Time Factor
Finally, you must also realize that buying a franchise is not the same as starting your own company. You’ll be exchanging a 10-hour job you despise for a 16-hour venture that is not completely yours.
Therefore, it pays to determine how much time you will devote to the franchise and ensure that you are comfortable with it.
All in all, franchise businesses can be a great investment option if you have some loot sitting in the bank. If you are well connected, ambitious, and decorated in the game, you can earn a decent passive income perhaps without ever setting foot into your store.
With an understanding of the above facts, buying and running a franchise becomes easier, and the investment risks less.