Things to Consider Before Buying a Franchise

Before you sign on the dotted line with an agreement for a Florida franchise, make sure you’ve conducted your research and feel confident about your decision. Without knowing all your rights and responsibilities you could end up frustrated, so due diligence is critical for your new enterprise.

There are several factors you’ll want to consider in depth before committing to a franchise, first of which is the type of experience that’s required, or best suited, to running this kind of business. Without insuring that the franchisor has a proven track record for franchisee support, specifically, training, advertising and volume purchasing power, the franchise will likely struggle to survive and likely fail.

Make sure that you have a complete understanding of the business and that you have acknowledged the hours necessary to run the business successfully.

You also want to investigate as much as possible about the franchisor and answer a few key questions about the parent operation, like:

  • How long have they been in business?
  • What is the track record for the company thus far?
  • What kind of business experience do the directors and officers of the company have?
  • How are other franchisees performing?
  • What is the general financial condition of the company?

Finally, look into the nuts and bolts of the franchise agreement. How much will it cost you to get into the business? Are you required to buy any products or services from the franchisor? If so, how often are you obligated to do this, and how will this influence your profits? Most importantly, you’ll also want to review the circumstances under which the franchise agreement can be terminated or renewed. There’s no guarantee that you’ll want to stay in the business forever, so make sure you know upfront what options you have for getting out if it comes to that.

Beware of “home grown” business opportunities with limited franchise history. It is critical to first obtain VERIFIABLE financial information for franchisor controlled operations and franchisee operations. For a retail business, location is as important as the business opportunity.

Insure that the demand for the product or services at existing business operations, are not being inflated or skewed by factors which you cannot duplicate in a new franchise. For example, if an existing franchise is successful because it offers services or products which are unavailable to the new operation, (e.g. existing operation has a liquor license and such a license is unavailable in the new location), the financial return in the new location will be substantial less, and likely less appealing to customers.

Similarly, if an existing location is benefiting from trade from other businesses (e.g. located near a movie theater or other attraction), and patronage is enhanced because of the existing location proximity to other business, the new location will not enjoy comparable customer patronage, without a similar advantage.

Lastly, do not engage in a business you know nothing about. The learning curve may be too steep for you to succeed. If possible, buy a an existing franchise from a franchisee, with the caveat that the current owner remain in the operation for a period of time after the sale to insure a smooth transition, and hand holding for at least one business cycle.