11 Things You Should Know Before Buying a Franchise

Kenneth Burke.jpegFranchising is a different animal than other types of businesses, so there’s a natural learning curve for potential buyers. But what if we could minimize the learning curve, or even remove it?

I asked my friend Julie Batycki this question. She’s the VP of Operations and Development for Educational Outfitters. She’s opened dozens of stores and trained all their owners.

“You talk to hundreds of people a year,” I said. “If there was one document you could give people before they talk to you, so they can skip the learning curve, what would that document need to say?”

The following is that document. Here are 11 things you should know before buying a franchise.

1. How is buying a franchise different than starting a business from scratch?

There’s always risk in opening a business. Even franchises can’t guarantee the success of a new location! But starting a business from scratch is like creating an original work of art. You choose all the supplies, decide what to create, and hope it turns out well.

Buying a franchise, on the other hand, is like getting a paint by numbers kit. If you follow the instructions, you should create something beautiful.

2. What does the buying process look like?

There are lots of little steps. Typically, it goes like this:

You reach out to a franchisor or broker for an overview of the business. If you want to take a next step, then you’ll get into the details of startup costs, territory, unique aspects, etc. If you’re serious about the opportunity (after due diligence), then you submit a formal application and talk with current franchise owners to get a better feel for life as an owner.

If you meet the application criteria, and the brand likes you, they award you a franchise. Then you pay your franchise fee, get any needed financing, and start setting up shop.

The vetting and application process could take a few weeks to a few months. The time between purchase to grand opening is normally 3-6 months, but could be longer if you need to build your store from the ground up.

3. Why are franchises “awarded”?

You can’t just go out and buy a franchise like a cup of coffee. When you get a franchise, you’re also entering into a business agreement with that brand. And since franchisors want to make sure new franchisees will be good business partners, they “award” franchises.

In other words, it’s an acknowledgment that you meet all requirements to own a location, and that both parties want to work with together.

4. What territory size can you expect?

Franchise territories are normally based on population density. Every brand has their own criteria, but you can generally expect a large enough territory for your store to succeed. No franchisor wants to open a location that’s doomed to fail.

5. How much work does it take?

Starting a business is always a lot of work, and buying a franchise is no exception. You’re still in charge of every detail of the location’s day-to-day operations.

The big difference is that a lot of stressful and important decisions are already made for you. You can focus on growing your business instead of figuring out what to do next, but it will still take the majority of your time and energy.

6. How much does it cost?

Costs vary drastically between brands. An Educational Outfitters franchise, for instance, can be started for as little as $82,000, while a McDonald’s could cost you $1,500,000. Most fall between $150,000-$400,000. Reasons for variation include:

  • Construction
  • Inventory
  • Personnel
  • Commercial space
  • Hardware and software
  • Initial franchise fee, among others

You’ll also need to support yourself until your business brings in enough revenue to provide an income. Often, brands with fewer locations have lower startup costs, but that’s not a rule.

7. What kind of people do franchisors want?

Franchisors want to work with people who share their values, and who are willing to put as much effort into helping the company succeed as they do. That’s one reason it’s so important to research franchises thoroughly - you’ll have to operate by their values.

8. How much support to franchisees get?

You’ll get about as much support as you want. Franchisors can’t run your business for you, but they want you to succeed. Most offer early and ongoing training to make sure you do.

9. Can I buy a franchise and have someone else run it?

You can, but that’s not recommended. New businesses normally don’t make much in the beginning, and most owners can’t afford someone to run it for them.

There are also certain duties you’ll be responsible for anyway, because you’re the owner. However, franchisees who make their locations succeed create the opportunity to become more hands off owners.

10. How big of a commitment are we really talking about?

Buying a franchise usually involves several hundred thousand dollars, a 5-10 year contract, ongoing royalties, and most of your time. For some, this is well worth the value you get in buying a franchise. Either way, buying a franchise is a serious career move.

11. How do I get started?

Every franchise has an “Opportunities” section on their website. Search around for a few that align with your values, skills, and goals. When you find them, reach out! Franchise development professionals are always happy to talk. If you take the first step, they’ll help you through the rest.

Kenneth is the marketing director for Text Request, a business texting platform. He's also the owner of Kenneth Burke Media, a boutique marketing agency, and has helped dozens of businesses, from pre-launch startups to billion-dollar companies, achieve their goals.

www.textrequest.com