ENTREPRENEURSHIP / MAR. 28, 2015
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6 Questions to Ask Before Buying a Franchise

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Franchising involves a long-term commitment between two entities; the franchisor and franchisee. Therefore, before starting a franchise, you need to have a clear understanding of what you are getting into. If you rush into it, you might end up regretting your decision a few months or years down the line. The best way of getting to know a franchisor is by asking as many questions as possible.

See also: How to Open a Franchise

Here are some of the questions you need to ask before buying a franchise:

1. When was the franchise started?

This is the first question you need to ask before getting affiliated to any franchise. You need to be sure that you are dealing with a franchise that has been in existence for a long time and has a solid track record. In addition, you need to find out the number of franchisees currently doing business under the franchise. If they are too few or the number is reducing, it could be an indication that the franchise is not very viable.  

2. What is the franchise’s growth trend?

Studying a franchise’s growth trend will give you an idea of what your business could be earning in the future. A steady growth rate shows that the franchise is stable, which could result in good profits for your business. However, a declining or flat growth rate could be an indication that the franchise is slowly losing popularity in the market.

3. What is the franchisor’s legal status?

Besides asking about the financial status of the franchisor, you should also obtain information about their legal status. Find out if there are any pending lawsuits and how this could affect future operations of the franchise. In addition, carry out some research on any other legal issues the franchise has dealt with in the past.

4. What does the franchise fee include?

Starting a franchise will require payment of an initial franchising fee, as well as ongoing fees which are paid either annually or monthly. You need to find out what is and isn’t included in these fees. Ask if site development, training programs, advertising, and technical assistance are included in the fees. Some franchisors might require you to pay additional fees for some of these services.

5. Are there financing options?

Many franchisors offer their franchisees financing to start off their businesses. Take time to ask about how exactly the financing program works. Visit other lenders in your area and compare the two options. Only accept financing from the franchisor if their terms are better than those offered by other lenders.

6. What are the territorial restrictions?

When it comes to franchising, territory is very important. Having exclusive control over a specific geographical area will make it easier for you to grow your business. Therefore, find out what plans the franchisor has concerning territorial restrictions. Ask for the franchise density map to get an idea of where other franchises are located. To be safe, it would be advisable to have a written agreement which guarantees you exclusive rights in your area.

See also: How to Buy an Existing Franchise

The answers you get to these questions will help you make a decision about whether or not to buy a franchise. Any more ideas you would like to share?

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