How to Prepare to Buy Your First Franchise
Many franchises look rosy on the surface. There are big promises of potential and grandiose ideas about the type of success you’ll see. Although many franchise owners have tremendous success, the few that do not are usually those who were unprepared.
Here’s how to make sure you don’t fall into the same trap.
Research, Research, ResearchYou’re already reading this, which means your research process has begun. Researching articles online is the first step toward understanding what franchise ownership entails, but it’s not the last.
Many franchise owners work in their franchise before buying it. They get a taste for the potential, learn about new opportunities and get familiar with the day-to-day operations. It’s hands on research that helps potential owners understand exactly what type of situation they’re entering before they buy.
Not able to work in your franchise before buying? No problem.
Another way to do the same type of research is by talking to other franchise owners. Interview the owners in your area and get to know their experience.
Talk to several of these people to learn more about their experience. Although yours will inevitably be unique to you, it’ll still give you good insight into what you can expect.
- What have they loved about owning the franchise?
- What have they struggled with?
- What’s a major sticking point?
- Would they do it again if given the opportunity?
Plan Your FinancesThere are many costs to opening a franchise. These extend well beyond the initial fee you’ll pay to the corporate offices. Before you begin, there are five financial must-dos you must go through.
1. Determine your net worth
2. Decide if you’ll need financing and where to get it
3. Talk to current franchise owners about their costs
4. Calculate the extra costs you’re certain to incur
5. Decide how much of your personal money you’re willing to invest.
Find the Right LocationAs any realtor will tell you, “location, location, location.”
Many franchise owners struggle in their first years because they didn’t choose a prominent location. Having a visible storefront is one of the best ways to market your franchise, especially in food service.
However, prominent storefronts will usually cost you more money. Decide how much you’re able to spend and then research to find the best location within your budget. You might need to go through some extra legwork but it’s worth the effort.
Separate Business and Personal FinancesYou’re probably ready to separate your business and personal life mentally. You might have already done this for years. However, before you open your franchise, you must also separate your personal and business finances.
Having a formal business structure, such as a corporation or LLC, will protect your personal assets no matter what happens in the business. Talk to a business attorney to decide which one is right for you. It’s a good idea to have this in place before you sign contracts with the corporate office.
TakeawaysOwning a franchise is exciting but it takes a healthy amount of preparation to be successful. Research, plan and separate your personal finances and you’ll be off to a healthy start in franchise ownership.