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7 things to investigate before you buy a franchise

Posted on June 24, 2022 By BUSINESS PROVIDERS No Comments on 7 things to investigate before you buy a franchise
Business

The insurance franchise business concept can appear to be quite enticing when you start exploring for small business ideas, company names, and startup tips.

A fantastic approach to start your own business is by purchasing a franchise. You might benefit from a well-known brand with a well-liked product or service and a solid reputation.

Additionally, you have access to support for advertising and marketing as well as operation guides to make running your business more efficient.

While franchising provides you significantly less control over how, where, and how long you run your firm, it does allow you more access to capital.

It’s crucial to consult a qualified business advisor, accountant, or lawyer before you purchase a franchise. Before choosing a franchise, take into account the following advice.

Learn everything you can about franchising

Before you commit to starting a franchise business, you should educate yourself on franchising and seek professional counsel. The free online courses offered by Franchise ED will teach you more about franchising:

  • Pre-entry franchise education
  • Franchise and small business survival class

It’s important to ask plenty of questions and make sure you understand how the franchise model could affect the way you do business.

Understand the franchise agreement

You agree to the franchise agreement for a predetermined period of time, typically five years. It specifies exactly where and how you will operate your franchise, and it is wise to seek professional advice to ensure that you are aware of your rights and obligations under each clause.

The business you’ve established as well as any goodwill you may have accrued could be returned to the franchisor after the franchise agreement expires because the franchisor is not required to renew your franchise.

Read the disclosure statement carefully

Your franchise agreement, code of conduct, and disclosure statement should all be provided to you before you sign into a franchising deal.

All of the company’s current franchisees should  listed in this disclosure document. Speak with a few of them to learn more about their experiences and any difficulties they may have had with the franchisor or the company concept.

For a more rounded opinion, it’s important to speak with multiple franchisees and even former franchisees.

Additionally, it’s critical to stay informed about code of conduct updates and the potential implications for your franchise. Keep up to date by joining the ACCC’s Franchising Information Network. The code is frequently reviewed.

Identify your financial risks

Financial risks are an inherent part of running a business, particularly when it comes to outside influences like competition and the status of the local, national, and even worldwide economy.

There are some dangers associated with franchising that might not be present in other company models. more specifically.

  • Over the course of your franchise agreement, you’ll need to have additional cash on hand to cover unforeseen expenses. For instance, your franchisor might alter their store’s design or operating procedures, and you’ll typically be accountable for the associated costs.
  • It’s possible that regional differences in consumer demand exist. Some franchises or locations could fare well, while others don’t experience the same level of success.
  • Where you purchase your shares may not always be your option. Although another supplier may offer you cheaper goods, your franchisor may already have long-term agreements in place with certain vendors.

You should consider your likelihood of being able to recoup your initial investment . And turn a profit throughout the course of your franchise agreement before deciding to purchase a franchise.

Understand your territory

If you run a mobile dog wash business, for instance. Your canine clients may come from particular postcodes, neighborhoods, or geographical regions.

Keep an eye out for any territory overlaps or ambiguous boundaries . Since these could seriously hamper your ability to compete with other franchisees.

You’ll need to know how many territories the franchisor now has. How many are up for grabs, and how many are planned for the future. You’ll also need to know whether or not other franchisees can compete in your area . How internet sales are handled inside territories.

Consider restraint of trade

This clause forbids you from going up against the franchise both during the duration of the agreement and after it expires. Make sure you comprehend how this will impact you both while you are a franchisee and after your contract expires.

Find out if there are ongoing fees

In most franchise business arrangements. You (as a franchisee) would pay a royalty fee to the franchisor on a weekly, monthly or yearly basis.

You need to know how this royalty fee works. Whether it’s a flat fee or a percentage of your sales and whether. There are separate fees for advertising and marketing.

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