14 Mar Tips on How To Cover Your Bases Before Investing in a Franchise
Investing in a franchise is often considered a safer alternative to starting a business from scratch. You get an established brand, good customer base, and some support from the parent company. This can be an attractive option for people who want to start a business but are worried about the risks involved. You should bear in mind that franchising also has some risks and it is important to cover all your bases before you invest in one. Here are some tips that can help you:
#1 Be Certain that The Franchise Model Suits You
People purchase franchises because they want some independence and control over their profession. It’s important to understand that the franchisor will still have a lot of control over how you operate your business. You will need to follow their regulations and guidelines on marketing, customer service, troubleshooting, etc.
You need their permission to grow and open new branches and have to pay royalties to them even when your business is slow. Before you purchase a franchise, consider your options carefully and make sure you understand the responsibilities that come along with the venture.
#2 Consider the Initial Investment Range
The initial investment range is the amount of money you need to invest in your franchise for the first few months of slow business. Some franchise branches take off immediately and start providing results. Others take some time and need to establish a foothold in the local community before you see any returns. Here are some factors to consider:
- Can you pay the initial investment amount to buy the franchise?
- Can you operate the franchise without profit for a few months and still maintain your personal lifestyle? The expenses will include royalty fees, property rent, employee salaries, etc.
- How long can you sustain the business without seeing enough revenue to cover expenses?
The answer to these questions will let you know how much you can invest in a franchise and if that particular franchise is worth your money and effort.
#3 Consider the Contact
Franchise companies will provide the copy of the standard contract when you ask them. You should study this contract carefully to determine your obligations, the franchisor’s obligations, penalties, exemptions, etc. The two most important factors to pay attention to are:
The franchisor can terminate your rights to operate the franchise if you don’t pay royalties or run the franchise according to their business model. You need to be aware of the conditions and problems that can lead to termination. If your franchise is terminated, it’s very likely that you’ll lose all of your investment.
Franchise contracts are usually long-term and can last for nearly 20 years. However, renewals aren’t automatic and the franchisor can decide not to renew your contract. They can also add new conditions or increase royalty payment amounts to the new contract. If you’ve established your business over the long-term and consider your venture profitable, this can be very problematic.
#4 Research the Franchise Thoroughly
Not all franchise opportunities are equal, which is why you need to research them carefully before you make your investment. Speak with the existing franchisees and visit branches to see how these establishments work. You should also research online and look into the reputation of the company. This will ensure you make the right decision.
If you want to know more about investing wisely in a franchise or want some advice, feel free to get in touch with us at The Franchise Institute. You can call us on 1300 855 435 or fill in this contact us form and we’ll reply as soon as we can.
Thanks for reading,
The Franchise Institute Team
1300 855 435