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What Should I Consider When Buying a Franchise?

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  • Written By: N. Madison
  • Edited By: Bronwyn Harris
  • Last Modified Date: 09 June 2018
  • Copyright Protected:
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    Conjecture Corporation
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One of the most important things to consider when buying a franchise is what interests you. No matter how successful other franchise owners have been with their businesses, you have less chance of enjoying success if you don't select something you enjoy. Fortunately, there are franchise opportunities in just about every field, ranging from childcare and health services to printing and food products and services. You should also consider the amount of time you have to invest. There are franchise opportunities designed for full-time, part-time, and even home-based entrepreneurs.

Money is another important consideration when buying a franchise. Some franchises cost hundreds of thousands of dollars to buy into. Fortunately, that's not always the case, and there are some franchises that require just a few thousand dollars of investment. If you want to buy a franchise that requires a much larger investment than you can afford, you may be able to secure financing to help you realize your goals. There are even some franchise systems that offer financial help with buying a franchise as part of their packages.

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Most franchise opportunities sound good in their advertisements. To avoid making the wrong choice when buying a franchise, it's best to put some time and energy into researching the opportunity and reading the franchise's legal documentation, which is called a disclosure document. In particular, you want to learn about the franchise system's background, including the experience of the franchise's executives, financial history, and the earning potential for franchisees.

You'll also want to consider the litigation history of the franchise system and whether or not it has been involved in a bankruptcy; with this information in mind, you can evaluate the company's financial stability. Since the information included in a disclosure document can be complex, it's a good idea to ask a lawyer for help with understanding all the data it includes.

It's also a good idea to consider the rules and regulations a franchise system has in place for its franchisees. You'll want to know how much the owner of the franchise system, called the franchiser, will control how you operate your business, what you may sell, and where you may sell it. For example, you may be given a territory to sell your goods and there may be other rules for running the franchise. You'll also want to learn what the rules are for advertising the franchise's goods and services and how much of your income you'll have to contribute to advertising campaigns. Some franchise systems require those who invest in their systems, called franchisees, to contribute to such a fund.

Don't forget to find out about training and support when buying a franchise. You'll want to know whether or not help will be available if you have a problem while running your business, especially during the early stages. If the franchise requires the use of equipment, running of processes, or hands-on creation of products, you may also do well to find out whether adequate training is provided.

When you're thinking about buying a franchise, it's a good idea to use the disclosure document to learn about both former and current franchisees. You'll want to know how many are in your area, as more franchisees means more competition for you. If the disclosure document reveals that a significant number of franchisees have canceled their franchises or been terminated, this could be a sign of a problem with the system.

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