How to Buy a Franchise
Curious about making your dreams a reality? Not sure which franchise would fit your professional objectives, but want to discover something new to try out? Well then, this blog post is for you. Here we discuss the benefits and disadvantages of buying a franchise, what you should look for when “pitching” to your dream company, and tips on how to find the right match. We hope it helps! Enjoy!
Inventors are always coming up with new ideas that could change the world as we know it, but until now there hasn’t been an easy way for them or anyone else who wants their idea implemented and succeed. That’s where franchising comes in.
The purpose of this article is to explain what a franchise is, the advantages and disadvantages of becoming a franchise owner, and what it takes to buy a franchise.
So…what’s a franchise? A franchise is basically establishing a small business that has been proven to be successful by another company. In other words, you get to take advantage of an already established product or service and sell it yourself. Some popular franchises are McDonald’s for restaurants, Chuck-E-Cheese for children’s entertainment establishments, and 7-Eleven for convenience stores. To read more about how these franchises work, click here .
Advantages:
#1 Flexibility and a low start-up cost.
A franchise allows you to start a business and not look over your shoulder all day because you’re working for someone else. Also, if the franchise comes out with new products or services, it could significantly increase your income. New products may require less investment than something that is 20 years old, making it easier for you to expand. If the product is well-liked and has proven to be successful, you will most likely be able to take advantage of this without needing any outside funding or assets like inventory or real estate.
#2 The ability to buy a franchise without having to give up your home or assets.
When you invest in buying into a franchise, you get to keep everything that you own including your job and house. This ensures that you won’t be destitute of other resources if the franchise fails. Also, if you’re already established in life and have things that can sustain yourself for the next few months, then having another job is not necessary at all.
#3 It’s easier to scale your business. Especially essential if:
a.) You're running a restaurant .
b.) You're in a crowded market.
a.) Restaurants are especially easy to scale. If you own a public restaurant, marketing yourself is the key to success. It’s an easy business to copy and takes very little money and effort to start another one in another place that has similar demographics as your original restaurant.
b.) Running a franchised business is great because your success will be determined by how you market yourself, as opposed to how many customers you get directly from your franchise. If your franchise product is more famous than you are, then owning it could make it easier for people to recognize the brand instead of just your identity behind it.
#4 A franchise is a shortcut to success
A lot of people invest in franchises because it takes less time and resources to get started. It can help you get comfortable with your idea or industry very quickly while still making enough money to live off of.
#5 Free advertising .
This one is obvious but surprisingly effective because many people still believe that franchising free advertising. The more people hear about the brand, the more likely they are to eventually become a customer. Especially important if you’re starting out and have no established customer base in your area - which is what will eventually lead them to buy from you instead of the big company down the street.
Disadvantages:
#1 Poor terms of payment or compensation.
When you invest in a franchise, you risk your financial health by agreeing to miss out on certain kinds of payment in exchange for some guarantee of future revenue.
#2 The product or service may not be as appealing to people.
The title of this section is a bit misleading because these disadvantages aren’t so much about the franchise itself, but more about the industry you choose to put your money into. Even if someone knows how to start and operate a restaurant, if it’s targeted towards people who don't ever eat out then they won't be able to profit from their purchase because they are unlikely to become customers or even reach the point where they consider buying from them.
#3 You may not be able to hire the best employees.
Because a franchise is in the business of selling products and services to customers, often times it can lead to less-qualified people making plans and spending money on your product. You could also end up paying more in sales tax than you need to if you’re a small business owner located in a big company - how much are you willing to risk for something that could potentially turn out badly?
#4 The cost and time commitment
If you want to start a new business, there are a lot of resources online about how to do it in order to find out when everything is available for purchase or what supplies you will need. However, for franchises there is a lot more to do in order to secure one and get started. Especially if you’re raising money for the franchise upfront for a start-up cost - you have to be able to prove that your business idea will have enough customers who will buy your product or services in order for you to make money from it.
#5 The risk of losing everything.
If your franchise fails or goes out of business, there's a good chance that you'll lose everything that you invested in it, including your house, car and other assets. So as long as you can afford your monthly expenses, an unprofitable venture isn't something that should be taken lightly because it could put everything up in jeopardy.
#6 It could take a long time to start seeing revenue.
Because you’re just buying an idea and not physically producing anything, it could take longer for you to get started and earn money from your investment. This is especially true if the franchise has already been around for a while or the industry that it’s in is already crowded because there are probably several other people selling a very similar product. This makes it very important to check how many people are competing with each other when considering where to put your money into.
Conclusion:
If you’re looking for an easy way to make money and are willing to invest your time, money and effort into doing it, then a franchise might be the right thing for you. On the other hand if you have a lot of capital that you’re willing to risk on something new and interesting, then starting something of your own may be better than buying into someone else's idea. Whatever you end up doing, it’s important to keep these things in mind when thinking about what industry fits your investment style.
I personally prefer to own my own business because I’m free from all kinds of contractual obligations and can instead focus on what I want.
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How to Buy a Franchise